CBE’s interest rate hike and pound devaluation triggers shift in economic landscape

Cairo – March 6, 2024: The Central Bank of Egypt (CBE) made a bold move by increasing interest rates by 6 percent. This decision, coupled with the devaluation of the Egyptian Pound, set off a chain of event with significant effects on the economy. State-owned banks responded with new Certificates of Deposit (CDs), the stock market witnessed a substantial decline, and the much-anticipated IMF deal was successfully concluded.

In an unplanned meeting, the Central Bank increased key interest rates by 6 percent to tackle inflation, despite possibly leading to a temporary slowdown in private sector credit growth. The bank also stressed the importance of getting rid of the parallel foreign exchange market, noting that it would help control inflation and lead to a gradual decrease in overall inflation in the future.

Alongside the Central Bank's decision to adopt a more flexible approach to inflation targeting, banks all over the country updated their official exchange rates. The US dollar peaked around LE 50 throughout the day, showing a significant drop in the value of the Egyptian pound compared to the previous fixed rate.

The Central Bank set its official exchange rate at LE 49.47 for buying and LE 49.57 for selling USD.

State-owned banks, the National Bank of Egypt (NBE) and Banque Misr, introduced new three-year certificates of deposit with decreasing interest rates, starting at 30 percent and gradually dropping to 20 percent in the third year, aiming to attract investors in this uncertain environment.

The Egyptian Stock Exchange ended Wednesday's session with a collective decline due to local selling, resulting in the benchmark index EGX 30 falling by 3.02 percent to finish at 29,743 points. The market capitalization decreased by LE 48 billion to LE 2.031 trillion.

Shortly after the long-awaited devaluation, Egypt and the International Monetary Fund (IMF) announced the finalization of a new agreement, increasing the previous $3 billion loan to $8 billion. This decision was made in response to significant macroeconomic challenges, especially with the recent conflicts affecting tourism and Suez Canal revenue.

As part of broader economic reforms and to encourage foreign currency transactions, the Central Bank removed spending limits on foreign currency credit cards, aiming to boost foreign currency circulation and potentially ease pressure on the Egyptian pound.