Central Bank of Egypt to Keep Interest Rates Unchanged, Despite Rising Inflation and Currency Devaluation Concerns
With the regular monetary policy committee meeting scheduled for next Thursday, analysts polled by Reuters expect the Central Bank of Egypt to keep overnight interest rates unchanged. President Abdel Fattah El-Sisi has reportedly ruled out any devaluation of the pound in the coming months, and none of the analysts expected a change in interest rates.
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Inflation Concerns
Despite rising inflation, the Monetary Policy Committee held rates steady at its last meeting on May 18. Annual urban inflation accelerated to 32.7 percent in May, just short of the highest recorded rate so far, from 30.6 percent in April. On a monthly basis, inflation jumped to 2.7% from 1.7% in April.
Steady Currency
The president’s apparent commitment to keeping the currency steady, according to analysts, removes a potential incentive to raise interest rates. Noman Khaled of the National Bank of Kuwait said, “The authorities seem keen to keep the currency steady for the time being, which removes a potential incentive to raise interest rates.”
IMF Recommendations
Analysts also noted that the apparent shift away from policies agreed with the International Monetary Fund (IMF) in December indicates that Egypt will at least temporarily abandon other painful IMF recommendations such as raising interest rate. Pascal Defoe of BNB Paribas said, “We expect the central bank to keep interest rates unchanged given the expectation that foreign currency liquidity will improve in the short term and the possibility of another depreciation of the pound will decrease.”
Currency Devaluation
Since the Russian-Ukrainian war that broke out in February 2022, the Central Bank has allowed the Egyptian pound to lose half of its value against the dollar. President El-Sisi has ruled out further devaluation anytime soon, citing potential harm to national security and Egyptian citizens.
Despite rising inflation and concerns over devaluation of the Egyptian pound, analysts expect the Central Bank of Egypt to keep interest rates unchanged at its next meeting. The apparent commitment to keeping the currency steady removes a potential incentive to raise interest rates, and the shift away from painful IMF recommendations suggests that Egypt will at least temporarily abandon other such recommendations. As the situation develops, it will be interesting to see how the Central Bank of Egypt responds and what steps they take to address inflation and currency concerns.
