In mid-June, the Central Bank of Egypt's (CBE) Monetary Policy Committee decided to raise the benchmark overnight deposit rate, overnight lending rate and its main operations rate by one per cent to 11.7 per cent, 12.75 per cent and 12.25 per cent, respectively. This act has now fed through to the retail banks, with the state-owned banks raising the rates they offer consumers on deposit and savings accounts. Citing high inflation, the CBE's increases surprised observers who had expected a maximum 0.75 per cent hike to absorb the inflationary pressures. June's increases were the second interest rate surge in 2016, following a 1.5 per cent hike in March when the Egyptian pound was devalued by 13 per cent. The May inflation rate on which the decision was based was 12.23 per cent, up from 9.51 per cent in April and marking the highest rate since 2008, according to the CBE. The inflation rate rose even further last month to record its highest level in seven years in June to reach 14 per cent. Banque Misr has taken the lead in pushing up the rates it offers consumers by increasing interest rates for account holders to a 10-year high by adding one per cent on deposits and 0.75 per cent on saving accounts. The largest state-owned bank, the National Bank of Egypt (NBE), has decided to raise the rates on deposits by 0.75 per cent and one per cent for saving accounts. Similar actions have also been taken by Banque du Caire and the Industrial Development and Workers Bank of Egypt (IDBE). The four banks did not change the interest rates on investment certificates, as these were raised after March's rate hike. Both NBE and Banque du Caire have upped the rate by offering new three-year investment certificates at an interest rate of 12.5 per cent. Banking expert Bassant Fahmi did not expect the private-sector banks to increase their interest rates. “They already have enough deposits, so they do not need to attract customers by increasing rates,” she said. However, an official at one of the private banks, who requested anonymity, forecast that the private banks would now also raise their rates to maintain market competitiveness. “This could be done indirectly through new products and packages at special prices,” he said. Banking expert Ahmed Adam explained that increasing interest rates on deposits and saving accounts was a buffer used by the banks, as studies had showed that when there was a decline in the growth of banking deposits “people found it more safe and profitable to buy gold as a means of saving than depositing their money in the banks.” Lobna Salah, a 51-year-old school teacher, said she had never seen interest rates on saving accounts as a good destination for her savings. She would rather invest in an asset and then sell it later, she said. Ibrahim Mahmoud, a 33-year-old assistant manager at a tourism company, echoed the same opinion. Commenting on how the CBE decision would affect lending operations in the medium term, the anonymous banking source said it would not make a big difference as bank customers who request loans are in need of them and are unlikely to be swayed by small changes in interest rates. Governor of the CBE Tarek Amer also hinted recently at his intention to further devalue the Egyptian pound. The bank source commented that this would likely push individuals to shift their investment patterns and not to depend on deposits and savings accounts. Even after the increase in interest rates, the real value of their deposits would decrease with the decline in the value of the pound, he said. The instability in the value of the pound has prompted a number of individuals to invest heavily in the real estate sector, evident in an unprecedented increase in demand for new housing units. The banking expert said the CBE might raise interest rates for a third time in 2016 if it further devalued the currency. “Another devaluation is not the best solution, but the CBE needs to do this to attract more foreign currency and obtain loans from international financial institutions such as the International Monetary Fund,” he said. Other analysts questioned the value of raising interest rates for the economy as a whole. Teresa Kersting, an Egypt economist at Focus Economics, said the CBE's latest one per cent rate hike would likely not be sufficient to bring inflation down. “March's devaluation and high food prices keep inflationary pressures high,” she said. “Another devaluation is expected later this year, and this, coupled with the government's planned fiscal consolidation measures, particularly the envisaged introduction of a Value Added Tax, are seen as keeping inflation high,” Kersting said. A panel of 18 economists was consulted by Focus Economics in early July, and it thought there would not be a further increase in the CBE's interest rates this year. Another devaluation of the Egyptian pound is on the cards for this year, as the CBE aims to alleviate the country's dollar shortage and rein in the currency black market, Kersting said, anticipating the pound as registering LE9.47 per dollar in the official market. It is expected to weaken further to LE10.01 per dollar next year, she added.