Egypt raises interest rates to an 11 year high

20 June 2016

The decision was made during the CBE’s policy meeting and is understood to be a measure to counter rising inflation

The Monetary Policy Committee of the Central Bank of Egypt (CBE) has raised its basic interest rate by one per cent on 16 June, according to a statement from the bank.

The decision was made during the CBE’s policy meeting and is understood to be a measure to counter rising inflation.

A spokesperson from the central bank told MEED on 19 June that the one per cent increase in the basic rate will mean the CBE’s deposit and lending rate will rise to 11.8 per and 12.8 per cent respectively.

The decision takes central bank interest rates to an 11-year high. The rate hike  follows news last month that inflation in Egypt increased by 12.4 per cent year-on-year in May as price pressures continue following the devaluation of the pound in March this year.

Data from the London-based Capital Economics shows that Egypt’s headline inflation rate (which covers urban consumers only) rose from 10.3 per cent year-on-year in April to 12.3 per cent year-on-year in May.

In what has been the highest rate in over 12 months, Capital Economics adds that the rise in inflation was driven by the increase in both food and medical costs. In May the government decided to hike medicine prices, which Capital Economics predicts in a recently published research note added 1.1 percentage points to the headline inflation rate.

The central bank’s monetary policies will be closely watched by the government considering the sensitive nature of the cost of living and the social and political implications that follow the civil unrest it often causes.

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