CAIRO - 27 October 2022: The Central Bank of Egypt (CBE) announced, Thursday, the issuance of several decisions related to the exchange rate, interest rates and letters of credit for importing.
The decisions which were taken in an exceptional meeting included raising the Central Bank of Egypt’s (CBE) interest rates by 200 basis points or 2 percent.
The overnight deposit rate, overnight lending rate, and the rate of the main operation were raised to 13.25 percent, 14.25 percent, and 13.75 percent, respectively. The discount rate was also kept raised to 13.75 percent.
“The objective of raising policy rates is to anchor inflation expectations and contain demand side pressures, higher broad money growth and second round effects of supply shocks,” the Monetary Policy Committee (MPC) explained, noting that the inflation is higher than the expected average rate of 7 percent (±2 percentage points) in the fourth quarter of 2022.
It also added that achieving low and stable inflation over the medium term supports real incomes and sustains the achieved competitive gains of the Egyptian economy.
The CBE’s committee also announced moving to a durably flexible exchange rate regime, leaving the forces of supply and demand to determine the value of the Egyptian pound against other foreign currencies. “This will take place while prioritizing the primary goal of achieving price stability, and building up sustainable, adequate levels of Foreign Exchange Reserves,” according to the MPC.
Moreover, the CBE will begin the process of gradually repealing the use of Letters of Credit for import finance, to be fully canceled in December 2022.
It elaborated that this procedure will serve as a catalyst for the rejuvenation of economic activity in the medium term.
According to the MPC, Egypt witnessed large capital outflows and rising commodity prices.
The decisions also included working towards building the foundation for a derivatives market to further deepen the foreign exchange market and enhance its liquidity.