Egypt\'s central bank decided to raise its interest rate by 600 basis points and to allow the currency exchange rate to be determined by market forces at an emergency meeting on Wednesday, citing high inflation.
The Monetary Policy Committee of the Central Bank of Egypt lifted the overnight deposit rate to 27.25 percent and the overnight lending rate to 28.25 percent.
The MPC observed that the persistence of excessive inflationary pressures poses greater risks to its stability. The country\'s inflation was nearly 30 percent in February.
The committee said that they decided to accelerate the monetary tightening process with an intention to fast-track the disinflation path and ensure a fall in underlying inflation.
\"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 bank said.
\"The unification of the exchange rate is crucial, as it facilitates the elimination of foreign exchange backlogs following the closure of the spread between the official and the parallel exchange rate markets,\" the bank added.
Following the announcement, the Egyptian pound fell to a record low 42 per dollar on Wednesday. The devaluation came shortly after the news of the massive rate hike.
Egyptian authorities are in talks with the International Monetary Fund for an increase in an existing support package that will help the nation to deal with its economic challenges.
A durable shift to a flexible exchange rate regime was one of the terms that the IMF placed before the government while approving the USD 3 billion extended fund facility in December 2022.