Possible Drivers for a Second Interest Rate Hike
Published: 18 May 2017
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On November 3rd, the CBE opted for changing Egypt’s foreign exchange policy from a managed float to a full float regime. This resulted in a significant depreciation of the EGP versus the USD by almost 100%. By this change, the CBE lost the FX determination tool as a mean to control inflation in Egypt; and can only reside to other monetary policy tools such as decreasing/increasing reserve requirements, decreasing/increasing interest rates, decreasing/increasing money supply through open market operations to curb inflation and anchor inflationary expectations. Policy interest rates are set by the Monetary Policy Committee (MPC) of the CBE, which meets every six weeks on Thursday. An MPC meeting, initially scheduled on May 18th, has been rescheduled to May 21st amid heightened speculations on whether or not interest rates will be changed, especially after remarks from the IMF officials which implied that the CBE should use the interest rates more actively to control inflation.
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