The central bank unexpectedly hiked interest rates last night by 200 bps to a new recordhigh: The Central Bank of Egypt’s Monetary Policy Committee moved against market expectations on Sunday night when it decided to raise key interest rates by 200 bps, bringing the overnight deposit rate up to 16.75%, overnight lending rate to 17.75%, and discount rate to 17.25%, according to a CBE statement. Despite monthly inflation levels being on a cooling trend, annual rates are still high, leading the MPC to decide “that tightening monetary conditions warranted a commitment to its price stability mandate.” While monthly headline inflation cooled to 1.69% in April (“its third consecutive month of decline due to fading cost-push pressures”), the MPC suggested it was concerned that “core inflation which excludes volatile food items grew by 1.10 percent (m/m) in April, recording a slight increase after decelerating in February and March.”

Throw in the 300 bps bump that accompanied the float of the EGP and interest rates are up500 bps since November.

The hike is “consistent with the targeted disinflation path,” the central bank said,and is in line with the CBE’s view that inflation will cool to something in the 13% band by the end of 2018 “and to single digits thereafter.” So why is a rate hike the way to go? In the language of the MPC, a rate hike can be used to “contain demand-side pressures and second-round effects resulting from supply shocks that may lead to deviations from inflation targets, as well as to achieve reserve money targets that were designed to be consistent with the inflation targets.”

It’s hard not to see the IMF’s hand at play here. Our friends in the banking community and just about every analyst with whom Bloomberg and Reuters spoke for their respective polls in the run up to yesterday said the rate hike was a bad idea. It would, Bloomberg said, be “counterproductive because the price gains are not being driven by excess demand.” To say nothing about interest rates being a lousy means of transmitting monetary policy in a nation as un-banked as ours, where (generously) perhaps one in five citizens has access to the banking system and SMEs still struggle to qualify for credit. And yet the IMF has — at the highest levels — made clear since April that an interest rate hike was the way to go to curb inflation. It could work. Then again, if our aunt underwent gender reassignment surgery, she could become our uncle.

REAX: Bloomberg quotes Arqaam Capital’s Reham El-Desoki as explaining that the decision “is the textbook answer to high inflation, but the data and the weak transmission channels in Egypt do not warrant an additional rate increase.”

Why would you invest in your business today? As an earlier research note from Arqaam noted before last night’s rate hike, a 200 bps rise in interest rates “would render investment irrational at such high cost of debt.” And don’t get us started on (a) the staggering implications on the cost of borrowing for the state or (b) the shift in the nation’s long-term debt structure if the treasury keeps tapping international debt markets in foreign currency because it’s so much more affordable to borrow in hard currency.

You can catch early news pieces on the late-night hike from Reuters and Bloomberg, and we’ll have a proper roundup of reactions for you tomorrow.

Expect The Donald in Omm El Donia “very soon”: US President Donald Trump met one-on-one with President Abdel Fattah El Sisi yesterday. According to The Associated Press, the meeting with El Sisi “underscored the kinship, with Trump saluting his counterpart on the April release of Egyptian-American charity worker Aya Hijazi.” Following an invitation by El Sisi, Trump said, “I will get to Egypt. We will absolutely be putting that on the list very soon.” Trump also said he was having “very, very important talks” with El Sisi, adding that they have “really been through a lot together positively” and that “safety seems to be very strong” in Egypt. El Sisi said Trump is a “unique personality that is capable of doing the impossible.” Trump praised El Sisi’s fashion choices, according to Politico and the New York Post, which quote him as telling El Sisi “Love your shoes. Boy, those shoes. Man.” Xinhua says the trip is planned to mend soured ties under Obama.

Besides El Sisi, Trump had also held individual meetings with several heads of statesbefore participating in a roundtable with the Gulf Cooperation Council and joining Saudi King Salman in opening Riyadh’s new anti-terrorism center. Trump and the leaders of the GCC states signed “an agreement to crack down on terror financing, including the prosecution of individuals who continue sending money to militants,” The Washington Post says. The agreement is the “farthest reaching commitment to not finance terrorist organizations … The unique piece of it is that every single one of them are signatories on how they’re responsible and will actually prosecute the financing of terrorism, including individuals,” Trump’s deputy national security advisor Dina Powell says.

Al Azhar Grand Imam Sheikh Ahmed El Tayeb also attended the summit, where he delivered a speech on fighting terrorism at the Twitter Forum, from where he reportedly left right before the Donald’s speech, Al Shorouk says.

During his speech yesterday, the US president spoke mostly of the need to militantlyunite to “drive out” the terrorists, Reuters says. “The US president did not use his signature term ‘radical Islamic terrorism’ in the speech, a signal that he heeded advice to employ a more moderate tone in the region,” notes the newswire. Trump did, however, point to Iran as the mutual enemy and a “key source of funding and support for militant groups,” prompting a fiery reaction from Iranian Foreign Minister Mohammad Javad Zarif on Twitter, who said Trump was “milking KSA of USD 480 bn.”

The western press seems to think that the speech “could have been worse,” given Trump’s anti-Muslim rhetoric during the elections and the fact that he tried to bar Muslims from entry into the US. Still, however, for a speech that was meant to be about Islam, “Trump did not say anything significant about Islam as a religion or civilization,” Mustafa Akyol writes in a reaction piece for the NYT. Instead, it focuses on the need to fight terrorism and Iran. “The main non-Sunni power, Iran, was bashed by both the American President and his Sunni hosts. This is not going to help anything other than adding to the sectarian divide,” he adds, noting that it is strange since “most radical Islamist terrorists in the region are Sunni, not Shiite” and that the speech was mainly geared towards Trump supporters on and off US soil.

The Egyptian press’ coverage of the Donald’s speech was mostly carried over from thewestern press last night, but we’ll be on the lookout for columnists’ reactions over the next few days.

Fighting terror with a four-point strategy: Egyptian President Abdel Fattah El Sisi urged Arab and Muslim leaders on Sunday to rise above their differences and collaborate with each other and the rest of the world to battle the growing threat of terrorism. Addressing an audience at the Arab-Islamic-American summit in Riyadh yesterday, El Sisi spoke of the need for a “clear action plan with a designated time frame to root out the funding and arming of terrorism.” The Egyptian president presented a “comprehensive” four-pillar counterterrorism strategy that goes beyond military and strategic tactics to tackle issues including ideology and support for terrorist organizations. “This includes effectively confronting movements that conceal and market themselves as political entities, when in fact they foster terrorists and infiltrate societies…to prey on popular will to practice their extremist and exclusionary policies.”

The strategy goes like this: To truly fight terrorism, we must recognize who the terrorists are (hint: the US needs to officially label the Ikhwan as a terrorist group), recognize their partners and support systems, prevent them from recruiting new followers by pursuing reforms to religious discourse and education systems, and restoring peace to the Middle East, the instability of which has helped it become a fertile breeding ground for extremist thought and action. “The comprehensive approach, based on the four aspects that I have mentioned, ought to lay the foundation for a new phase of cooperation among our countries and peoples,” El Sisi said, praising US President Donald Trump for his “robust policy to address the challenges of terrorism” and his willingness to help mediate resolution for the conflicts of the Middle East.

You can read El Sisi’s full speech here (pdf) in English.

Egypt has been lobbying the US congress to pass a bill that would designate the Ikhwan an illegal terrorist organization, arguing that the group’s existence poses a threat to the region. The UAE government echoed that sentiment on Sunday, describing the group as “the main beacon of terrorist and extremist thought” in the Middle East in a statement picked up by Sky News Arabia.

Dispatch from AmCham’s AGM: A speech from the US ambassador to Egypt. Enterprise attended the American Chamber of Commerce’s Annual General Meeting and Luncheon where outgoing President Anis Aclimandos handed the presidency to Tarek Tawfik. The new board of governors for 2017-19 was announced at the same gathering. The guest speaker was US Ambassador to Egypt Robert Stephen Beecroft. Takeaways from his remarks:

• Beecroft described the AmCham Doorknock mission as “impressive. … It truly plays an important role in keeping vital communications open and ensuring there is an accurate exchange of information and understanding of each other's countries.”
• The successful mission indicates “new focus and new attention in and on a bilateral relationship,” which was clear in both presidents’ meeting in the US. The risk: That a “meeting becomes the high point in a relationship.” To avoid this, high-level meetings are taking place with “specific, meaningful engagement and partnership.”
• Beecroft mentioned upcoming visits from the US Department of Treasury and from The Office of the United States Trade Representative. The latter will be probably in July to “lay the groundwork for a resumption of talks” on a potential trade liberalization agreement.
• Planning is underway for the upcoming US-Egyptian Strategic Dialogue and Trade & Investment Framework Agreements talks. “We will work to open up markets and lower prices through competition for the benefit of both our countries.”
• Joint Bright Star military exercises will take place later in the year.
• A sign of US support to Egypt is that the US military assistance to Egypt has been “preserved at its current high level,” despite budget cuts.
• The US is, in effect, a friend of Egypt at international institutions including the IMF, the World Bank, and the EBRD
• The Overseas Private Investment Corporation and the Export-Import Bank of the United States are looking for new opportunities in Egypt.
• “The Unites States’ commitment to helping Egypt counter terrorism is firm and ongoing. I would also characterize it as eager.”

CIB named Egypt’s best bank by publisher of Al Borsa. Business News, the publisher of Al Borsa, says CIB was awarded the prize after strong and balanced performance in 2017 as it improved its profitability and had adequate capitalization. In the award’s subcategories, CIB followed National Bank of Egypt in customer satisfaction, which also topped the list for ESG, Ahli United Bank was named the most effective bank, and Egyptian Gulf Bank was named the fastest growing. The best bank award aggregates a weighted average of its four subcategories. A separate award of the best retail bank was also won by CIB.