This week the central bank of Egypt has maintained its key interest rates with no change. The bank is holding pat until it can see an impact on the country’s inflation due to last month’s hike in cost of borrowing is clearer.
Egypt’s Monetary Policy Committee maintained its overnight deposit rate of 14.75% and its overnight rate for lending of 15.75%, the bank announced in a prepared statement. A majority of economists who were served had predicted the bank would not move interest rates.
The bank increased its rates by 550 basis points on a cumulative basis since the beginning of 2016.
At the start of November, the bank eliminated its 8.8 pounds per U.S. dollar foreign exchange standard and to help stabilize its now floating currency, increased interest rates by 300 basis points.
Since that time, the Egyptian pound weakened to 19 pounds per one U.S. dollar.
Annual inflation surged in November to 19.4% a high of eight years and a number of economists expect that in 2017 prices will continue to rise, driven by different economic reforms that include tax increases and subsidy cuts.
During November consumer prices were impacted strongly by the reform measure in the economy that were related to the liberalization of the market for foreign exchange and the adjustment on hydrocarbon subsidies, said the committee in a prepared statement.
Looking forward, it is expected that annual inflation will narrow following the impact it will feel from transitory factors related to cost-push that stem from the reform measures applied by the government on the economy.
At this time given the risk, the committee expects the key rates from the central bank are appropriate.
Egypt has struggled with a shortage of foreign currency since its 2011 uprising known as Arab spring toppled the government, but ran off tourists and investors. Both tourists and those investors are major sources of all important hard currency.
In November, the Egyptian government was able to seal a loan of three years in the amount of $12 billion from the IMF or International Monetary Fund to be used to support its program of economic reform.
Since the initial uprising of 2011, Egypt has gone through tremendous struggles as it adapted to a different form of government after decades of rule under Hosni Mubarak whose government was toppled back in the spring of 2011.