Why the CBE raised interest rates by 1% amid currency pressures

The Central Bank of Egypt (CBE) defied market expectations on Thursday by raising its key interest rates by 100 basis points (1 percentage point), aiming to anchor inflationary expectations and mitigate escalating domestic and external economic pressures.

The Monetary Policy Committee (MPC) increased the overnight deposit, overnight lending, and main operation rates to 20.0 percent, 21.0 percent, and 20.5 percent respectively. The credit and discount rate was also raised to 20.5 percent.

The surprise rate hike caught many bankers and analysts off guard, as market consensus had favored maintaining current rate levels.

Inflation threats and exchange rate pressures

Speaking to Al-Masry Al-Youm, banking expert Hany Aboul Fotouh explained that the decision reflects heightened concerns over persistent inflationary risks and shifting global macroeconomic dynamics.

“Global interest rate trajectories—particularly decisions by the US Federal Reserve and major central banks—remain a critical variable for Egyptian monetary policy,” Aboul Fotouh noted, emphasizing the CBE’s push to preserve the appeal of local debt instruments and mitigate hot money outflows.

Aboul Fotouh pointed to the US dollar approaching EGP 56 in local banking channels as a key catalyst. The currency pressure poses immediate cost-push inflation risks for imported food commodities and essential production inputs.

Geopolitical uncertainties and supply chains

Escalating regional geopolitical tensions have further compounded market uncertainty, heightening risks of disruption across global energy markets, trade corridors, and supply chains.

The central bank reiterated that the tighter monetary stance aims to counter pass-through effects from rising food and energy costs, safeguarding domestic purchasing power amidst an unfavorable global economic environment.