Egypt raises bank rates again

Egypt raised various interest rates again today. 

The Central Bank of Egypt raised its overnight deposit rate, overnight lending rate and rate of the main operation 2% each to 11.25%, 12.25% and 11.75%, respectively, according to a statement. 

What is it?  A bank’s deposit rate refers to the interest rate banks pay on the cash deposits of account holders. The overnight lending rate is the rate by which banks lend money in overnight markets. The main operation rate refers to the interest rate the Central Bank charges other banks for borrowing money. 

Central banks typically raise interest rates to reduce inflation. Higher rates typically mean people save more and spend less. 

Why it matters:  The Central Bank said it raised the rates due to the “tensions” between Russia and Ukraine. 

“Trade sanctions imposed on Russia and corresponding supply-chain bottlenecks have elevated global commodity prices, such as international prices for oil and wheat, with the latter’s global supply also impacted by adverse weather conditions and poor harvests in select regions,” they said in the statement. 

The bank further noted other financial institutions raising rates and global supply chain concerns related to harsh anti-virus lockdowns in China. 

The Central Bank said inflation in urban areas rose to 13.1% in April from 10.5% in March. Core inflation, which refers to inflation from goods and services, also rose 11.9% in April from 10.1% in March. The former is the highest since 2019, the latter since 2018, according to the statement. 

Egypt also raised interest rates in March, which was the first rate hike since 2017. 

Inflation is surging across the world, and many central banks in the Gulf also raised their rates this month. The US Federal Reserve has also raised rates this year, a move that tends to have a ripple effect on monetary institutions worldwide. 

Egypt’s economy has been especially affected by the Russian invasion of Ukraine. Before the war, Egypt received 80% of its wheat from the eastern European countries. Egypt, which is the largest wheat importer in the world, is now ordering the grain from India. 

The war has also hurt Egypt’s tourism sector, which depends on sun-seeking travelers from eastern Europe. 

Know more:  Though the war in Ukraine has hurt Egypt’s economy, it is also driving increased traffic to the Suez Canal.