Russia’s invasion of Ukraine has stressed the Egyptian economy and has raised concerns about public dissatisfaction in the most populous countries of the Middle East.
The Egyptian pound fell more than 11% on Monday, but the central bank of the country raised major interest rates by 100 basis points each at a surprise meeting. This is the first rate hike since 2017. Analysts expected banks to raise interest rates at an upcoming meeting. Thursday.
The central bank said in a statement that it is acting in response to “global inflationary pressures” as supply chain disruptions and rising commodity prices. According to the Central Bank, Egypt’s annual headline inflation reached 8.8% in February, the highest rate in more than three years.
“These pressures have been amplified by the recent conflict between Russia and Ukraine,” the bank said.
Egypt is the world’s largest wheat importer and is particularly vulnerable to the impact of the war in Ukraine. Tens of millions of Egyptians rely on subsidized bread, and Egypt obtains 85% of wheat from Ukraine and Russia.
Last week, the Egyptian government imposed new price controls on unsubsidized bread. The government set a price of £ 0.5 to £ 1 per loaf on Monday, depending on the type of bread.
Bread prices are a central political issue in Egypt. Soaring food prices are considered one of the broader conditions that led to the 2011 uprising that expelled former President Hosni Mubarak.
Egypt’s broader economy has grown in recent years, but as a result of government austerity associated with the IMF lending program launched in 2016, the standard of living of most of Egypt’s 100 million people has plummeted.
Foreign investors have shrunk from Egypt since Russia launched an invasion of Ukraine last month because of concerns about how the Egyptian economy could suffer as a result of the war. Egypt also faces a loss of income from tourists from Russia and Ukraine, the main sources of foreign currency.
Economists and bankers say the Egyptian pound has been relatively stable for years, partly due to the intervention of Egypt’s state-owned commercial bank. The government does not allow intervention.
“People’s income doesn’t correspond to a decent life, but we’re doing our best to improve [economic] President Abdel Fatta Arsisi said in a television statement Sunday evening that Egypt was not facing a shortage of basic commodities and wheat.
The central bank said it has decided to raise overnight deposit rates, overnight lending rates and core business rates to 1.25%, 10.25% and 9.75%, respectively.
The aggression disrupted grain exports from Ukraine through the Black Sea and also raised questions about the country’s ability to plant for the next harvest.
Egypt is by no means an African country that is most dependent on Russia and Ukraine’s food supply. According to the United Nations, Somalia and Benin, respectively, were completely dependent on both countries for wheat imports from 2018 to 2020. Other wheat sources are available, but global prices have skyrocketed since the invasion.