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Central Bank of Egypt is expected to raise interest rate next week

Central Bank of Egypt

Cairo, (Business News Report)|| Fitch expected the Central Bank of Egypt to raise the interest rate next week, in light of its need for additional funding from the International Monetary Fund.

The move by the Central Bank of Egypt comes in light of the great challenges afflicting the Egyptian economy due to the repercussions of the Russian-Ukrainian war.

Contrary to Fitch’s expectations, Egyptian Planning Minister Hala Al-Saeed said two days ago that her country is not yet in talks with the IMF regarding a new loan.

Russia provided half of Egypt’s wheat imports in 2021, while 30% came from Ukraine, according to the latest data.

About 72 million Egyptians, or about two-thirds of the population, receive five loaves of bread per day per person, which burdens the country’s budget with more than 50 billion pounds annually in subsidies for this commodity alone.

Fitch also saw, in its report, that the war in Ukraine will affect the recovery of the tourism sector in Egypt, as Russians and Ukrainians represent about a third of the total number of tourists coming to the country.

Tourism is one of the main sources of hard currency in Egypt, along with remittances, exports, Suez Canal revenues, and foreign direct investment.

According to Fitch, raising the interest rate, in parallel with food price inflation, may complicate Egypt’s efforts to reduce the state’s public budget deficit.

But the largest country in the Arab world in terms of population, may get some financial support from the Gulf Cooperation Council countries to confront this situation.

The interest rate hike will be the first of its kind in Egypt since 2017. The Monetary Policy Committee is scheduled to meet on March 24.

In a related context, the “subsidized bread” places the Egyptian government between the hammer of inflation in the event of an increase in its price, and the anvil of aggravating the state’s public budget deficit in the event that its current price of 5 piasters per loaf remains.

The price of bread has not changed since the eighties of the last century, despite the cost of the loaf reaching 80 piasters in light of the current unprecedented rise in wheat prices globally.

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