- Attia Nabil
- BBC News – Cairo
Hamada Al-Roumi recovered a few days ago the value of the savings certificates that he had placed about a year ago, with an interest rate that was considered the highest at the time in Egypt, reaching 18%.
However, with a simple calculation, he discovered that he lost about 22% of the value of his money that he invested in these certificates over the course of a year.
The reason for this is the high core inflation rate, which the Central Bank of Egypt said in its statement last month that it reached about 40 percent, affected by the increase in food, grain, fuel and energy prices.
Hamada tried to pay by investing his savings in buying some gold coins and keeping them until needed, but he was surprised by the large increases in the prices of different gold karats due to people’s demand for it in times of crisis as a store of value and a means of safe investment.
The average gold price in Egypt, according to semi-official data, is 2303 pounds per gram of 24 karat, and 2015 pounds per gram of 21 carat, the most used, while the price of an ounce reached 71619 Egyptian pounds, and the price of a gold pound reached more than 16120 pounds.
New rate hike
Before disbursing the second package of a $3 billion loan from the International Monetary Fund, over 4 years through 9 tranches, which Egypt agreed with the fund last December, the Central Bank of Egypt raised the interest rate by 2 percent to reach 18.25 percent. for deposit and 19.25 percent for lending.
Therefore, Hamada awaited the decision of the Monetary Policy Committee to resolve his decision regarding his savings and whether he would turn them towards gold or put them again in one of the savings vessels that are expected to be announced by local banks with high interest rates that exceed even the 25 percent rate with which some Egyptian national banks issued investment certificates. It was suspended in late January, after collecting about 460 billion Egyptian pounds, according to previous statements by Mohamed El-Etreby, head of the Federation of Egyptian Banks.
face rising inflation
Rashad Abdo, head of the Egyptian Forum for Economic Studies, told BBC News Arabic that the core inflation rate in Egypt exceeded expectations, according to the Egyptian Central Bank, to reach about 40 percent last February.
He points out that it is directly linked to the interest rate. The higher the inflation rate, the higher the interest rate must be, so that citizens’ money is not eroded by the collapse of the currency’s purchasing power.
Abdo says that during the past year, the government devalued the pound 3 times in a row, with the interest rate raised by 10 percent during the past year only by decisions of the Monetary Policy Committee during the months of March by 1 percent, in May by 2 percent, and in October by 2 percent, in December by 3 percent, and finally by 2 percent at the end of March.
The head of the Egyptian Forum for Economic Studies attributes the successive decisions of the Central Bank of Egypt to raise interest rates to face high inflation rates, as banks want to withdraw cash from the markets, and push citizens to invest their surpluses in banks instead of pumping them into markets that suffer from a lack of goods and products due to the economic crisis. The global crisis resulting from the Russian war on Ukraine, the supply chain crises, and the global increase in commodity prices.
Rashad Abdo indicates that these matters have begun to calm down during the past few months, but the local markets are not responding due to the high value of foreign currencies, specifically the dollar, the main foreign trading currency, with the government’s inability to provide basic commodities at low prices, leaving the market to traders without strict regulatory controls. , according to some experts.
Economic journalist Mamdouh al-Wali, former chairman of the Al-Ahram Foundation, says that the Egyptian government has followed a flexible price policy since 2016 when the first move of the local currency rate was made.
But many analysts and some government officials prefer to use the term “float”, which was used by Atef Ebeid, the former prime minister of Egypt, in 2003 when moving the price of the currency after a very long period of remaining unchanged.
Al-Wali indicates that what is happening is a devaluation of the local currency against foreign currencies under pressure from international financing institutions, led by the International Monetary Fund, which sets two main conditions for moving forward with the aid package agreed upon by Egypt, namely, following a flexible exchange policy by devaluing the local currency, the pound. against the dollar, and raised interest rates on local deposits in pounds to counter high inflation figures.
With regard to the exchange rate, Mamdouh al-Wali says that the solution to the exchange rate problem lies in the need to raise the price of the dollar to a price greater than its price in the parallel market, and to provide the dollar in banks.
He points out that this matter is difficult to achieve at present in light of the weak dollar resources of the state following a global financial crisis, the decline in tourism revenues, Egyptian remittances, exports, etc., and the lack of dollars, whether for companies or individuals, which leads to market confusion and price fluctuations, he said.