The Egyptian Central Bank fixes the interest rate.. How will the decision affect the economy?

The Egyptian Central Bank fixes the interest rate.. How will the decision affect the economy?
The Egyptian Central Bank fixes the interest rate.. How will the decision affect the economy?

The Central Bank of Egypt resorted to fixing the interest rate on deposits and lending for the third time in a row, contrary to expectations that were referring to an increase, especially after the US Federal Reserve raised interest rates again.

“Erm News” spoke with experts about the decision of the Policy Committee, its impact on the economy and citizens during the coming period, and how to deal with inflation, which is still rising, according to a statement by the Central Bank.

positive effects

The head of the Planning and Budget Committee in the Egyptian House of Representatives, Dr. Fakhry El-Feki, said that fixing the interest rate is “a right decision; Because the central bank has other means to absorb excess liquidity, which is one of the main reasons for the rise in inflation, through bids that are made from time to time.”

In statements to “Erm News”, El-Feki pointed out that “the Central Bank of Egypt also encourages banks to link their deposits to absorb excess liquidity in the market, in addition to another means, which is the mandatory reserve, which was raised from 14% to 18%.”

He explained that “in case of raising the interest rate to control inflation, it negatively affects economic activity and leads to a slowdown in growth, although it is more effective in curbing inflation faster.”

Avoid an economic downturn

El-Fiqi pointed out that fixing the interest rate would avoid the slowdown in economic activity that was expected to occur if it was increased, in addition to avoiding a rise in public debt interests.

He explained that every 1% increase in interest leads to a EGP 28 billion increase in debt, which leads to more deficits and consequently an imbalance in the state’s general budget.

Positive reflection on the stock market

He pointed out that “the fixing of the interest rate positively affects the performance of the Egyptian Stock Exchange in the coming period, in contrast to the increase that would have made any investor refrain from dealing in the stock market and resorting to banks to obtain higher interest, safe investment and lower risks.”

He stated that “the decision will have positive results on the growth process, thus increasing job opportunities and decreasing unemployment rates, as well as avoiding Egypt from a downturn in the economy in the coming period.”

And he indicated that “the issue of the exchange rate and moving the dollar against the Egyptian pound is another issue, not linked to interest rates, and there are other procedures taking place in the issue of evaluating the local currency rate, which is linked to negotiations with the International Monetary Fund.”

In the same context, the economic expert, Dr. Ali Al-Idrisi, indicated that the decision to fix the interest is “a kind of stability that the central bank seeks and moves accordingly, with betting on the set of decisions taken during the past few days, by providing more incentives to importers and manufacturers.” .

Al-Idrisi added, in statements to “Erm News”: “As well as the decisions related to withdrawal and deposit operations, as well as decisions that have a kind of coordination between the Central Bank of Egypt, the Ministry of Finance and the government with regard to import and so on.”

Avoid the high cost of debt interest

He noted that the Egyptian Minister of Finance, Dr. Mohamed Maait, issued decisions related to imports, customs exemptions, and goods in warehouses at the ports. “All these matters are betting on the Central Bank to bear fruit, and the rotation of the production wheel is what reduces prices.”

He said that the Central Bank of Egypt “knows that raising interest rates will lead to an increase in investment costs and the interest cost of government debts by more than 60 billion pounds if the increase is only 11%, which leads to an exacerbation of the size of the internal debt.”

He explained that “the central bank is trying not to get carried away by the US Federal Reserve and the Bank of England, in the matter of interest, and it seeks to have some kind of stability.” Because successive increases will negatively affect the economy and cause a recession, and there may be an increase in interest if the inflation rate continues to rise.”

Other tools to counter inflation

On dealing with inflation after fixing the interest rate, Al-Idrisi indicated that “there is a move to increase production rates to increase the supply of goods and reduce commodity prices, and the import process will gradually return again, by starting to estimate the size of the dollar required from the market and providing it, and this is what we bet.” It is the central bank.”

And he went on to say that the central bank raised the “mandatory reserve” ratio to 18% to reduce the volume of liquidity that exits from banks and heads to the market again through loans, which works to reduce inflation rates as well.

The performance of the stock market improved and for the benefit of borrowers

He concluded that “the decision to fix the interest rate is in the interest of the stock market and works to improve its performance, as it is in the interest of the citizen, because it reduces the cost of borrowing, but this does not prevent savers, deposit holders and investment certificates in banks from being affected, as the decision is actually not in their interest.”

The Monetary Policy Committee of the Central Bank of Egypt decided, in its meeting on Thursday, to keep the overnight deposit and lending rates and the main operation rate at the level of 11.25%, 12.25% and 11.75%, respectively. The credit and discount rate were also kept at the level of 11.75%.

The Central Bank of Egypt also decided to increase the percentage of cash reserves that banks are obligated to maintain, to become 18% instead of 14%. This decision will help in restricting the monetary policy pursued by the Central Bank.

In its statement, the Central Bank expected economic activity to grow at a slower pace than previously expected, partly due to the uncertainty and negative repercussions at the global level.

Tags: Egyptian Central Bank fixes interest rate . decision affect economy

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