The decision of the Central Bank of Egypt to fix the interest rate was made despite the fact that the Monetary Policy Committee referred to the rising inflation rate in the country. What are the reasons for such a step?
Economist Mustafa Abdel Salam told RT that there are other considerations behind the decision to fix the interest rate, chief among which is the desire to increase local public debt, especially given its spikes in recent years, since every percentage increase in interest rates above the target leads to a higher public deficit. budget of about 28 billion pounds.
Abdel Salam added that there is another consideration, which is that the weapon of raising the interest rate is not the most effective means of combating inflation and the currency crisis in Egypt. There are other, more effective means, including increasing domestic production, stimulating direct investments and increase in dollar revenues, which are files that the government confirms it is working on.
However, on the other hand, the decision to fix the interest rate also has negative sides, according to Abdel Salam, including increased pressure on the Egyptian pound, especially with a decrease in its value against major currencies, especially the dollar, continued growth of US interest and Europe, the continued rise in inflation and rising prices, especially for fuel, food and commodities, in addition to some resorting to dollarization and hoarding foreign exchange.
In conclusion, Abdel Salam noted that the desire of the state to encourage investment and revive economic activity by reducing the cost of production requires the stabilization of the interest rate, and not its increase, despite high inflation.
Cairo – Nasser Hatem
Source: RT