Egypt’s Central Bank faces multiple crises

The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) will hold a periodic meeting on Thursday when options to contain successive shocks to the Egyptian economy remain limited before growing local and global crises.

CBE will likely raise interest rates at today’s meeting to curb inflation, which has risen to unprecedented levels in Egypt.

Raising interest, however, will reduce chances of increasing growth rates in a country where the population exceeds 100 million people.

Moreover, it will increase the burden of debt service on the government.

CBE is forecast to hike its overnight interest rates by 200 basis points as it struggles to bring soaring inflation under control, a Reuters poll showed on Monday.

The median forecast in a poll of 15 analysts is for the bank to increase its deposit rate to 18.25% and its lending rate to 19.25% at its regular monetary policy committee (MPC) meeting. Seven of the analysts expected an increase of 300 bps.

At its last meeting on Feb. 2, the central bank left rates steady despite analyst expectations of a 150 bps increase, saying steep rate hikes put in place over the previous year should help to tame inflation, which in December had accelerated to a five-year high of 21.3%.

The central bank had raised rates by a total of 800 bps since Russia invaded Ukraine in early 2022.

With 12-month non-deliverable forward (NDF) rates now over 40 per dollar, another large-scale pound devaluation was just a matter of time, said Gergely Urmossy at Societe Generale.

“No time like the present to align foreign exchange rates with fundamentals,” Urmossy said, adding that the March 30 policy announcement was "one of the most anticipated events in the African Frontier space."

The weakening currency and soaring inflation, which in February hit a five-and-a-half-year high of 31.9%, also put more pressure on the central bank to raise rates, even if it adds to the costs of servicing climbing government debt.