The Egyptian pound fell to 49 against the dollar (Shutterstock)

JPMorgan expected - on Monday - that the Central Bank of Egypt would raise the key interest rate by another 200 basis points later this month, amid indications that inflation is heading to an “unprecedented level” after the significant devaluation of the currency.

The reading of consumer price inflation in Egypt for last February showed the largest monthly rise ever, as it jumped 11.4% compared to 1.6% last January, which far exceeded economists’ expectations.

Through a research note, analysts at JP Morgan said they now expect “another 200 basis point increase in the deposit interest rate at the next meeting, which may be held later this month according to the Central Bank of Egypt’s schedule.”

Economic analysts added that they no longer see “any scope” to cut interest rates until February 2025.

Last week, the Central Bank of Egypt decided - during an extraordinary meeting - to raise overnight deposit and lending returns and the bank’s main operation rate by 600 basis points, reaching 27.25%, 28.25%, and 27.75%, respectively.

The Central Bank said in a statement that the Monetary Policy Committee decided to accelerate the process of monetary restriction in order to accelerate inflation’s downward path and ensure a decline in its monthly rates.

Annual inflation (price levels) in Egypt rose to 36% last February from 31.2% in the previous January.

Central Governor Hassan Abdullah said earlier that the state aims to reduce the inflation rate to single digits (less than 10%) in the medium term, after the bank liberalized the exchange rate of the pound (the local currency) and raised interest rates last Wednesday.

A few days ago, the Central Bank allowed the pound to decline and pledged to switch to a more flexible exchange rate system, coinciding with Cairo signing a loan program with the International Monetary Fund worth $8 billion.

The agreement was signed after the devaluation of the pound against the dollar, as its price rose from about 30.85 pounds to more than 49 pounds.

Source: Al Jazeera + Reuters