The Central Bank of Egypt’s decision aims to absorb cash liquidity from the market and reduce demand for goods and services, which may contribute to reducing the inflation rate in the medium term.
The Central Bank of Egypt held an extraordinary meeting today, Wednesday, during which it decided to raise interest rates by 600 basis points, bringing the total increase in interest rates since March 2022 to 1,900 basis points.
The Egyptian economy is facing significant inflationary pressures, as the annual inflation rate last January reached 21.9%, its highest level since 2017.
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The increase in interest rates aims to absorb cash liquidity from the market, which contributes to reducing demand for goods and services, and thus alleviating inflationary pressures.
In its press release, the Central Bank of Egypt expected that the inflation rate would exceed its target and announced rate of 7% (± 2 percentage points) on average during the fourth quarter of 2024, against the backdrop of current global developments and their impact on the Egyptian economy.
It is expected that increasing interest rates will lead to an increase in the cost of borrowing, which may affect economic activity in general, especially the private sector. It may also lead to an increase in the prices of some goods and services, especially those that rely heavily on financing.
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