In an unscheduled meeting, the Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) raised key interest rates by one percent for the first time since 2017.

The CBE raised the overnight deposit rate, the overnight lending rate, and the rate of the main operation by one percent (100 basis points) to 9.25 percent, 10.25 percent, and 9.75 percent, respectively.

The CBE attributed its decision to the global inflationary pressures caused by the COVID-19 crisis and recent Russian-Ukrainian conflict.

“Rising international commodity prices resulting from further supply chain disruptions in addition to increased risk-off sentiment have added to domestic inflationary pressures as well as external imbalances,” the CBE explained in a statement on Monday.

Meanwhile, the US dollar’s trading price against the Egyptian pound jumped significantly on Monday morning to EGP 17.5 for buying and EGP 17.4 for selling, up from a long-running EGP 15.7 for buying and EGP 15.6 for selling, respectively.

In February, Egypt’s inflation rate reached its highest level in almost 30 months to surpass the CBE’s initial inflation target of 7 percent (±2) by the end of 2022.

The country’s annual headline inflation jumped in February to 10 percent, up from 8 percent in January, driven mainly by the significant rise in food and beverage commodities, according to the Central Agency for Public Mobilisation and Statistics (CAPMAS).

“Being keen on safeguarding the achieved macroeconomic stability, the CBE stresses on the importance of the exchange rate flexibility to act as a shock absorber to preserve Egypt’s competitiveness,” the CBE said.

Moreover, the measure came to address inflationary pressures while supporting economic activity to anchor inflation expectations and to contain the second round of effects of the supply shocks caused by exogenous factors outside the scope of monetary policy, the CBE added.

The CBE stressed that Egypt’s economic reform programme, which started in November 2017, has put the country’s economy on a robust footing to weather economic disruptions as they emerge.

“The hard-won macroeconomic gains have provided the CBE with a strong toolkit to implement its monetary policy and maintain price stability over the medium term and with solid buffers to insulate the economy from excessive volatility,” the central bank said.

It added that attaining low and stable inflation over the medium term supports real incomes and sustains the achieved competitiveness gains of the Egyptian economy.

Meanwhile, the MPC underlined that the path of future policy rates depends mainly on inflation expectations rather than prevailing inflation rates, adding that it will continue to closely monitor all economic developments and it is committed to utilise all available tools to achieve its price stability mandate over the medium term.

The MPC is scheduled to convene again on Thursday to review the key interest rates.

Also on Monday, Banque Misr and the National Bank of Egypt (NBE) greenlit offering deposit certificates with an 18 percent annual yield.

The measure came within an urgent meeting of the banks’ board following the unscheduled meeting held by the CBE’s MPC.

In mid-March March, amid rising inflationary pressures, the US Federal Reserve (FED) raised the US’ interest rates for the first time since December 2018 by 0.25 percent, with six more increases expected to be applied in 2022 over the recent global economic developments.