A Mother’s Day to remember in Egypt: A new drop in the Egyptian Pound’s value

What we expected and feared happened now.

On Monday, The Monetary Policy Committee “MPC” of the Central Bank of Egypt “CBE” announced raising the Key interest rates for the first time in five years by 1%.

The MPC raised the overnight deposit rate, the overnight lending rate, and the rate of the main operation by one percent (100 basis points) to 9.25 percent, 10.25 percent, and 9.75 according to Ahram Online for the first since 2017.

The Central Bank of Egypt in Downtown Cairo 
"March 2020" 

You may think 1% is a small percentage but you must think again because it had huge consequences.

The Egyptian Pound plunged into its lowest value in five years against the US dollar going down from LE15.6 for buying and LE15.7 for selling on Sunday to LE18.1 for buying and LE18.2 for selling on Monday.

The Egyptian Pound dropped by 10.67% against the US dollar accordingly. It is worth mentioning that JP Morgan estimated earlier in March that the Egyptian Pound to be overvalued by 15%.

Changing the key interest rate was a matter of urgency because the monthly meeting of the MPC was on Thursday not on Monday or Sunday. Usually, these big economic decisions are announced on Thursday right before the weekend. In some black comedy news, the committee announced it would not convene next Thursday.

What is alarming is that this happens two weeks at least before the start of the Holy Month of Ramadan. Ramadan is like peak of consumer spending on food commodities above them bread and thus we got a new set of decisions for bread on Monday too.

The Egyptian government and The CBE blamed the Russian invasion of Ukraine along with the post-coronavirus global inflation for the current economic crisis, which they admit to being “difficult” unlike the coronavirus crisis.

To face the current crisis as evidence of recognizing the challenge in front of it, Abdel Fattah El-Sisi’s administration announced a set of social and economic protection measures above them an allocation of LE2.7 billion to include 450,000 new families in the Takaful and Karama social protection programme, in addition to allocating LE190.5 billion to disburse the annual increase in pensions with a minimum of LE120 per pensioner as of 1 April.

Public servants will receive their yearly raise in April with an increase ranging from 8 to 15 percent with a minimum of a LE100 ceiling and without a maximum limit instead of July.

I am afraid this raise won’t catch the price hikes that will hit the ceiling already this week I think.

I am not an economist or claim to be one but according to what I have studied in business administration as well as what I know from history, there is no end to this crisis if our local manufactured exports continue to be less than our imports and we borrow endlessly from aboard to spend on unproductive projects.

It is not only the Russian invasion of Ukraine. The Russian invasion of Ukraine and its economic repercussions were the last straw that made the economy suddenly crumble like that. We will not get over those crises if we continue to put the blame on external factors alone.

Unfortunately, this is another blow to the Middle class that is already on the verge of extinction in Egypt.

Now all this happened on a very special date: Mother’s Day in Egypt !!

It was a celebration to remember.