Egypt’s monetary policy pays off big time, as its inflation figure for February dips by almost half.
- Egypt’s inflation rate for February dropped by almost half, from 24% in January to 12.8% in February.
- The drop in inflation is attributed to a year-long foreign currency shortfall subsiding.
- The inflation level is the lowest since 2022, when the country began to slide into an economic recession.
The statistics office in Egypt revealed that the country’s inflation rate grew by an annual 12.8% in February, compared to 24% in January.
This is the lowest consumer price level in the North African country since 2022, about the same time that the country began to slide into an economic recession, as seen on Bloomberg.
The drop in inflation is a result of the year-long foreign currency shortfall that fueled an underground market for dollars, ultimately subsiding.
Egypt’s current inflation level had been expected as a result of a positive contrast with the high inflation number of February 2024, when many Egyptian businesses were turning to purchasing dollars at outrageous costs from the black market and passing the cost on to customers at the tills.
Most experts forecast that the inflation rate will continue to reduce all year round.
Last year, officials allowed the country’s currency (Egyptian pound) to fall 40% against the dollar and raised interest rates to a record high in March to ensure outside finance.
This policy, made possible by a significant investment from the United Arab Emirates, enabled the country to more than double its International Monetary Fund loan program as part of a massive global rescue totaling $57 billion.
The ease of inflationary pressures now allows Egypt’s central bank greater latitude to formally begin a long-awaited monetary-easing cycle at its next policy meeting on April 17. The regulator has sustained interest rates for seven straight meetings.
“Food and beverage prices, the largest single component of the inflation basket, climbed just 3.7% in February compared to 20.8% in January. On a monthly basis, consumer prices increased 1.4% versus 1.5%,” as per the Bloomberg report.
Egypt’s deal with the UAE
Last year in February, the United Arab Emirates invested a whopping $35 billion in Egypt’s economy. The deal at the time was described as the largest foreign investment Egypt has ever received.
The UAE’s $35 billion investment in Egypt has two components. The first is the UAE’s $24 billion acquisition of investment rights in Egypt’s Ras El-Hekma project, while the second is a $11 billion direct investment in the economy through the construction of other big projects.
According to Wamda Capital, Ras El-Hekma is a next-generation tourism city with a free zone and an investment zone that combine residential, commercial, and recreational areas.
The Abu Dhabi wealth fund ADQ was set to pay $24 billion for the Ras El-Hekma development rights, while Egypt will keep a 35% stake.
The remaining $11 billion was made available by the ADQ, which will come from UAE funds deposited at Egypt’s Central Bank.
