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Egypt's central bank has raised interest rates for the first time since March 2024, a surprise move aimed at containing inflation as the Egyptian pound weakens and energy costs rise.
The Central Bank of Egypt (CBE) raised its key rates by 100 basis points, or one percentage point, on Thursday, October 29. The overnight deposit rate rose to 20 percent and the overnight lending rate to 21 percent. The main operation and discount rates also rose by one point, to 20.5 percent.
A surprise decision
Most analysts polled by the business news service EnterpriseAM had expected rates to stay unchanged, although some had warned that a rise was back on the table.
The bank said the move was intended to anchor inflation expectations, reinforce its tight monetary policy and protect the slowdown in inflation it has achieved since a severe currency crisis in 2023 and 2024.
Pressure on the pound
Currency weakness appears to have been a key factor. On Monday, October 26, the dollar traded above 56 Egyptian pounds at the central bank for the first time. The same day, foreign and Arab investors were net sellers of about $664m of Egyptian Treasury bills and bonds, according to reports.
Foreign investors hold large amounts of Egyptian government debt, attracted by high interest rates. When they sell, the pound comes under pressure. Higher rates make Egyptian assets more attractive and can help stem those outflows.
The central bank also pointed to energy prices as a risk. Egypt is a net energy importer, and the US-Iran war has pushed oil prices sharply higher.
The cost
Higher rates come at a price. Egypt's government is one of the world's most indebted relative to the size of its economy, and much of its spending goes on interest payments. A food industry leader warned that the rise would widen the budget deficit, and businesses face higher borrowing costs.
What's next
The central bank's next scheduled meeting is on December 17. Its decision will depend on how the pound, inflation and investor flows respond, and on whether energy prices ease if diplomacy brings the Gulf conflict to an end.
Sources and references
- 1.Egypt's central bank raises key interest rates by 1% — Ahram Online
- 2.CBE raises key rates by 100 bps — EnterpriseAM
- 3.Egypt's central bank raises key interest rates by 100 basis points — Investing.com
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