2023-09-21 20:49:19
Cairo, Egypt (CNN) – The Central Bank of Egypt decided, on Thursday, to maintain the deposit and lending return rates at the level of 19.25% and 20.25%, respectively, attributing the reason for this to “the consistency of the inflation data with the bank’s expectations,” while bankers believe that Increasing interest rates “is no longer the most appropriate monetary tool to control inflation in the current period,” as it is affected by the foreign exchange shortage crisis.
Egypt faced an economic crisis with the exit of indirect foreign investments and the rise in the import bill in the wake of the global inflation wave and the outbreak of the Russian-Ukrainian war. This crisis affected a shortage in foreign exchange and an increase in the domestic inflation rate to unprecedented levels, which prompted the Central Bank of Egypt to increase interest rates by 1,100 basis points. Since March 2022.
Banking expert Hani Aboul Fotouh said that the Central Bank of Egypt kept the interest rate “as a result of the failure of the interest increase to control the inflation rate or even bring the inflation gap closer to the bank’s targets at 7% (±2 percentage points) during the fourth quarter of 2024.” He justified his statement that the central bank increased the interest rate by 11 percentage points since March 2022, while core inflation reached 40.4% at the end of last August, which indicates that “raising the interest rate is no longer a useful monetary tool to control inflation.”
The Central Bank of Egypt increased interest rates 6 times during the period from March 2022 to August 2023, with a total of 1,100 basis points, divided between 800 basis points during 2022 and 300 basis points in the March and August meetings of the current year.
Abu Al-Futouh added, in exclusive statements to CNN Arabic, that “the reasons for the high inflation rate in Egypt are linked to the foreign exchange shortage crisis, which affected the accumulation of goods in the ports, and the increase in the cost of importing production supplies and raw materials, and with the continued shortage of the dollar, the increase in the interest rate in… Egypt will not be able to control the inflation rate, unlike the United States of America, whose monetary tightening policy succeeded during the past months in controlling inflation, which prompted the US Federal Reserve to stabilize interest rates in its latest meeting.”
According to data from the Central Bank of Egypt, the annual rate of general urban inflation rose to record 37.4% in August 2023 from 36.5% in July 2023, and the annual rate of core inflation witnessed a slight slowdown for two consecutive months, recording 40.7% in July 2023, and 40.4% in August. 2023 compared to 41.0% in June 2023
Hani Aboul Fotouh expected that the Central Bank of Egypt would move to increase the interest rate at the last meeting of the Monetary Policy Committee in 2023, and linked the decision to the government’s ability to treat the main causes of the increase in the inflation rate, and thus increasing the interest rate will have a role in controlling inflation.
The Central Bank’s Monetary Policy Committee held 6 meetings during 2023, with two meetings remaining. The first is next November 2, and the second is December 21.
Banking expert Tariq Metwally said that fixing the interest rate “comes within the framework of the state’s vision to mitigate the repercussions of the economic crisis on citizens, as the inflation rate is very far from the target of the Central Bank of Egypt and the rate has reached unprecedented levels of more than 40%, which required increasing the interest rate to control it.” Inflation, but the state is adopting a vision to mitigate the negative impact of the economic crisis on the Egyptian citizen.”
This week, the government allocated a new 60 billion pounds ($1.9 billion) to increase the wages of state workers, pensioners, and beneficiaries of the “Solidarity and Dignity” program, which is a cash support program for the neediest groups, in order to ease the burdens on citizens.
Metwally agreed, with what Hani Aboul Fotouh said, that increasing the interest rate is no longer the most appropriate monetary tool to control the inflation rate, which has reached levels very far from the Central Bank’s target, and that increasing the interest rate is mainly linked to the rise in costs as a result of the foreign exchange shortage crisis, adding that The Central Bank preferred to stabilize the interest rate in order to mitigate the repercussions of the crisis on citizens.
Tariq Metwally, in exclusive statements to CNN Arabic, linked whether or not to increase the interest rate during the last two meetings of the Central Bank’s Monetary Policy Committee this year, to improving economic conditions globally, and overcoming the foreign exchange shortage crisis locally, which may prompt the Central Bank to continue stabilizing it until the end of the year. 2023.
The US Federal Reserve and the Bank of England maintained interest rates during their meeting on Wednesday, bringing the interest rate to a range of 5.25 and 5.50%, which is the highest level for the United States in about 22 years.
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