An overview of the effects of monetary policy in Egypt on GDP and inflation, from 1981 to the present day.
% annual growth rate:
Sources: M2 from Central Bank of Egypt and nominal GDP from IMF database, as at September 2023
The medium-term relationship between money and nominal GDP growth in Egypt, 1981-2022
Five-year moving averages of annual % changes, with 1983 being the start of the first five-year period
Comment on monetary trends in Egypt
For many years, Egypt's economy was centrally planned, with the government having total control over resource allocation, including distribution and pricing. It also focused on domestic production rather than importation of foreign goods. After suffering from a debt crisis in the late 1980s, the Egyptian economy was reformed, opening up to foreign investment and giving a greater role to the private sector. However, the aftermath of the global financial crisis saw food prices soar and before this problem could be addressed, the country then suffered a revolution in 2011, which led to a severe recession.
There was no national currency until the Egyptian Pound was introduced in 1834. For some years prior to 1962, it was pegged to Sterling but was then devalued and pegged to the US dollar instead. In 1989 the dollar peg was replaced by a tightly managed flotation, with strict controls on foreign exchange. The pound was finally allowed to float freely in November 2016. This resulted in a sharp depreciation of the currency and a spike in consumer price inflation which briefly reached an annual rate of 35%. Interest rates were increased to almost 20% to bring the inflation rate down,
Egypt's Central Bank was inaugurated in 1898. It is the oldest central bank in Africa. It has responsibility for the formulation and implementation of monetary policy, with price stability being the primary and overriding objective. An inflation targeting strategy is currently under review but the Bank is aware of the need to control the money supply as a means of bringing inflation down.
It has faced renewed inflationary problems since the coronavirus pandemic of 2020. The annual rate of broad money growth stood at over 27% in 2022 and prices rose by over 37% in the year to August 2023 in consequence. The central bank’s response was a sharp rise in interest rates, which reached 19.25% in August 2023, the highest value in over 30 years.