In a special meeting, the Monetary Policy Committee (MPC) of the Central Bank of Egypt raised the overnight deposit rate, the overnight lending rate, and the rate of the main operation by 600 basis points to reach 27.25%, 28.25%, and 27.75%, respectively. Additionally, the discount rate has been raised by 600 basis points to 27.75%.

“The domestic economy has been recently weighed down by foreign exchange shortages resulting in the existence of a parallel exchange rate market and constraining economic growth. Coinciding with this, external spillovers emanating from global inflationary pressures have continued to accumulate as the world economy witnesses successive shocks. Such shocks elevated risk-off sentiment and inflation expectations, amplifying underlying inflation. The resulting exchange rate movements and significant passthrough of international commodity prices, coupled with domestic supply shocks, have resulted in persistent inflationary pressures driving headline inflation to record levels,” the statement by the Central Bank of Egypt read.

Acknowledging these challenges, the CBE has reiterated its commitment to creating the necessary conditions for sustainable economic development. The central bank has reaffirmed its primary objective of maintaining price stability over the medium term.

To achieve this goal, the CBE is transitioning to a flexible inflation targeting regime, where inflation will serve as the nominal anchor. In this framework, the exchange rate will be determined by market forces, promoting the unification of the exchange rate and the elimination of backlogs in foreign exchange transactions.

The CBE also reiterated the importance of eliminating of the parallel foreign exchange market, highlight that this will mitigate inflation expectations, curb underlying inflation, and consequently, headline inflation is forecasted to exhibit a gradual deceleration in the foreseeable future.

It’s worth noting that there has been a decline of the dollar exchange rate on the black market to an average of 43 to 46 pounds during the past few days.

“The announced measures have been adopted as part of a set of comprehensive economic reforms in coordination with the Government, and backed by the steadfast support of multilateral and bilateral partners. In preparation for the successful implementation of these measures, sufficient funding has been secured to avail foreign exchange liquidity,” the statement read.

The MPC acknowledges that the impact of these rate hikes may take some time to fully materialize. Therefore, the committee will closely monitor and assess the risks surrounding the inflation outlook.

The MPC believes that the current tightening measures will bring the monetary stance to a sufficiently restrictive level, anchoring inflation expectations. These measures will be maintained for as long as necessary to achieve the desired disinflationary path, according to the statement.