Contrary to the expectations of financial institutions, investment banks and local residents, the Central Bank of Egypt decided to fix interest rates on the pound, the decision on which was divided.
Economic analyst Mustafa Abdel Salam called the decision “logical and bold” and told RT that there are several reasons for this:
The first reason is that “Most of the inflation in Egypt is currently imported and externally driven due to rising prices for food, oil products, raw materials and intermediate goods. Therefore, accounting for inflation in Egypt is not about raising the interest rate and withdrawing cash from the markets, but rather about increasing production and exports.” Reducing non-essential imports and strengthening the pound sterling.
Abdel Salam added: “If some are betting on an interest rate hike of at least half a percentage point, it is because of the government’s incitement to keep hot foreign funds invested in Egyptian debt instruments, be it bonds or treasury bills, and for this reason not exists in light of the withdrawal of 90 percent of these funds and the difficulty of returning them at the present time, especially with the increase in the interest rate on the dollar and the attractiveness of investing in low-risk and high-yield US Notes and bills.
Among the reasons, according to Abdel Salam, is also “the success of the banking sector in withdrawing a significant part of the liquidity in the market through the offer of the National Bank of Egypt and Egyptian savings certificates by 18%, and this certificate raised 750 billion pounds.” , and some of that liquidity could have been diverted to the foreign exchange market for dollar speculation, which is not happening now in light of the withdrawal of this huge amount of liquidity from the banking sector, which prompted the central bank to fix the interest rate without fear of an increase in demand for US currency from outside speculators.
Abdel Salam added that the Central Bank took into account in its decision “the desire to increase the burden of public debt, which has deteriorated sharply in recent years, especially since the government is the largest borrower from the banking sector, and in the event of an increase in the interest rate on 1 percent would cost the government budget about £30bn a year, and possibly more, in debt service.
Abdel Salam pointed out that the decision to raise interest rates is a “bitter drug”, saying that it “negatively affects the economy, especially investment opportunities, as it raises the cost of money and borrowing, and therefore central banks stay away from it unless they don’t swallow it like a bitter medicine in the context of fighting high inflation.”
In conclusion, Abdel Salam said that the Central Bank of Egypt “is not the only one who has disrupted the desire of major international central banks to raise interest rates, as was done today by the Central Bank of Turkey, which also decided to fix the interest rate. lira exchange rate.
To avoid the bitterest
As for stock market expert and economic analyst Hanan Ramses, she said the decision is “a bitter decision to avoid a more bitter decision.” a state of recession from which the state will not be able to get out.
She added: “Therefore, the Central Bank resorted to fixing interest rates, content with the savings vessels that banks were allowed to issue, and the effect of a return to monetary easing to avoid any undesirable economic consequences, such as continued low levels of trade. value in the stock market, as well as the high cost of interest charged by banks on various credit lines.
As for fears of foreign investment fleeing because interest rates are out of step with inflation, Egypt is looking to diversify funding sources and an Arab orientation to capitalize on common interests and existing economic understanding, Ramses said.
The Monetary Policy Committee of the Central Bank of Egypt decided at its meeting today to fix the overnight rates on deposits and loans, as well as the main operating rate of the central bank at 11.25%, 12.25% and 11.75% respectively, and the credit and discount rates. the rate was set at 11.75 percent.
The central bank said the annual core inflation rate rose to 13.3 percent in May 2022 from 11.9 percent in April 2022.
The core consumer price index adjusted by the Central Bank fixed a monthly rate of 1.6 percent in May 2022, compared to 0.3 percent in the same month of the previous year and a monthly rate of 2.4 percent in April 2022. to the Egyptian Central report.