Egypt raises rate 50 bps, won’t hesitate to raise further

By CentralBankNews.info
    Egypt’s central bank raised its key rates, including the benchmark overnight deposit rate, by 50 basis points to “address inflationary pressures and anchor inflation expectations” and said it would “not hesitate to adjust the key CBE rates to ensure price stability over the medium-term.”
    The Central Bank of Egypt (CBE), which in January this year cut its rate by 50 basis points, raised the overnight deposit rate to 9.25 percent, the overnight lending rate to 10.25 percent, the rate on its main operations and the discount rate to 9.75 percent.
    The central bank’s decision comes after the monetary policy committee on Dec. 17 postponed any decisions at its scheduled meeting until today in light of talks with the government aimed at working together to create a economic framework that will stimulate economic growth and create jobs.
    The CBE, led by its governor, Tarek Amer who took over this month, and the government will again meet on Jan. 10.
    Key elements of the new framework include, but is not limited to:
    – Narrowing the fiscal deficit
    – Maintain price stability by avoiding double digit inflation
    – Reducing the trade deficit by encouraging local production
    – Stepping up structural economic reform to raise the potential output

    Inflationary pressures in Egypt have been building, as evidenced by the rise in non-food prices, with headline inflation rising to 11.1 percent in November from October’s 9.7 percent but still below the 2015-high of 13.1 percent seen in May. Core inflation rose to 7.44 percent in November from 6.26 percent in October but still below May’s 8.14 percent.
    “Looking ahead, while upside risks to the inflation outlook are mitigated by contained imported inflation, in light of broad-based declines in international commodity prices, underlying domestic inflationary pressures could push up inflation expectations,” the CBE said.
     The Egyptian pound has been depreciating since 2010 but authorities are under pressure to devalue it even further with a wide gap between official exchange rates and black market rates.
    Today the pound was quoted at 7.83 to the U.S. dollar, down 8.7 percent this year and down 26 percent since the start of 2011.
     Egypt’s Net International Reserves rose slightly to US$16.422 billion end-November from October’s $16.415 billion but are still below around $20 billion in the months from April through June, and reserves of above $30 billion in the five years preceding the 2011 popular uprising against President Hosni Mubarak.
    The uprising, part of the Arab Spring, resulted in the overthrow of Mubarak and scared off foreign tourists and investors, resulting in a plunge in much-needed foreign currency and revenue.
    Revenue from tourism was dealt another setback in 2013 when the Egyptian army helped remove President Mohamed Morsi.
    In 2014 revenue from tourism amounted to US$7.5 billion compared with $12.5 billion in 2010 but still up from $5.9 billion in 2013.
    Economic growth, however, improved in the 2014/15 fiscal year, which ended June 30, to 4.2 percent compared with 2.2 percent in 2013/14, with strong investment growth more than compensated for the drag from a fall in exports, the CBE said.
    In the second quarter of the 2015 calendar year, Egypt’s Gross Domestic Product expanded by an annual 4.5 percent in the second quarter from 3.0 percent in the first quarter.

    The Central Bank of Egypt issued the following statement: