Egypt raises interest rate by 600 bps as currency falls

The Central Bank of Egypt has increased the interest rate by 600 basis points to allow the exchange rate to be set by market forces.

Egypt’s Central Bank made the declaration via a statement on Wednesday, March 6, 2024, as it shifted to an inflation-targeting regime.

Egypt’s pound fell sharply against the dollar as the markets opened, tumbling past 40 pounds to the dollar from about 30.85 pounds previously.

The country’s international bonds soared, with longer-dated bonds enjoyed the biggest gains, with the 2047 bond enjoying the biggest gains, up 2.6 cent at 82.3 cent, Tradeweb data showed.

The premium demanded by investors to hold Egypt’s international bonds over safe-haven U.S. Treasuries tightened to 534 basis points, its lowest level since June 2021, according to data from JPMorgan.

Obi: Interest rate increase’ll worsen economic hardship, job losses

The Central Bank of Egypt announced that it had raised the overnight lending rate to 28.25 per cent and its overnight deposit rate to 27.25 per cent, as part of a decision to accelerate monetary tightening and ensure a decline in underlying inflation.

The apex bank said: “To ensure a smooth transition, the CBE will continue to target inflation as its nominal anchor, allowing the exchange rate to be determined by market forces.

“The unification of the exchange rate is crucial, as it facilitates the elimination of foreign exchange backlogs.”

While the Central Bank has had an inflation target until now, it also sought to manage the pound, which has been fixed at 30.85 to the dollar over the past year as the bank has sought to defend its value amid a chronic shortage of foreign currency, according to Reuters.

In late February, the government signed a major investment deal with the United Arab Emirates that eased pressure on the Egyptian pound on the black market.

The Star