Dubai, United Arab Emirates (CNN) – The Central Bank of Egypt raised the interest rate by 300 basis points; To contain inflation pressures, aiming to reach an average of 7% (±2% percentage point) during the fourth quarter of 2024, and 5% (±2% percentage point) on average during the last quarter of 2026. Experts stressed the need to control on the exchange market by issuing high-yield short-term savings certificates; to attract citizens’ savings, and to measure foreign exchange reserves; To meet the demand for the dollar to stop speculation on it.
The meeting of the Monetary Policy Committee of the Central Bank of Egypt, on Thursday evening, is the last meeting of the committee in 2022. Throughout the year, the committee raised the interest rate by 800 basis points, to become the price of one-night deposit and lending returns and the price of the main operation of the Central Bank 16.25%, 17.25%, 16.75%, Respectively, the credit and discount rates were raised to 16.75%.
Banking expert Hani Aboul Fotouh said that the central bank raised the interest rate by 3% once, with the aim of increasing the attractiveness of the Egyptian pound to reduce pressure on it against foreign currencies, by increasing the inflows of Egyptians abroad following the increase in the return rate on the pound, although the real interest rate is still negative.
Aboul Fotouh expected that this step – meaning the interest rate – would be followed by moving the pound against the dollar, and a commitment to a permanent flexible exchange rate in accordance with the agreement with the International Monetary Fund, in addition to offering high-yield savings certificates by some government banks.
Last Friday, the International Monetary Fund agreed to lend Egypt $3 billion as part of a program to reform the Egyptian economy, which included a permanent shift to a flexible exchange rate regime and a reduction in inflation rates.
Aboul Fotouh added, in exclusive statements to CNN in Arabic, that the Central Bank of Egypt has given itself a deadline to use monetary policy tools to control inflation rates, aiming to reach 7% (±2 percentage points) on average during the fourth quarter of 2024. , and a level of 5% (±2% percentage point) on average during the fourth quarter of 2026, depending on the structural improvement in the Egyptian economy, the disappearance of the negative effects of the Russian-Ukrainian war, and a solution to the crisis, and I believe that it will succeed within two years in reaching its goal.
According to the official statement, the Monetary Policy Committee of the Central Bank will continue to use all its monetary tools in order to control inflation expectations and contain inflationary pressures from the demand side and the secondary effects of supply shocks that may lead to inflation deviating from its target rates.
The banking expert pointed out that the application of a flexible exchange rate system permanently requires the availability of an appropriate cash reserve before reducing the exchange rate, otherwise there will be an unequal clash between the official and parallel market in favor of the latter, adding that decreasing the dollar against the pound is not a goal in itself, but rather the goal of the bank. Central is the stability of markets and control of inflation.
The statement of the Monetary Policy Committee of the Central Bank stated that the path of the basic interest rates depends on the expected inflation rates and not the prevailing inflation rates, and that the committee’s goal is to seek price stability.
For his part, Tarek Metwally, former vice president of Blom Bank Egypt, said that the Central Bank of Egypt raised the interest rate; To control the inflation rate, which reached 21.5% last November, and to eliminate the parallel market and speculation on the dollar, expecting a 4% increase in the interest rate during 2023 to eliminate the parallel market for exchange, and the return of gravity to the Egyptian pound.
Inflation rates in Egypt achieved record levels last month, as the annual urban inflation rate recorded 18.7%, the highest rate since December 2018, and the core annual inflation rate reached 21.5%, the highest rate since November. 2017, to continue its rise for more than a year.
Metwally explained, in exclusive statements to CNN in Arabic, that the 3% interest rate increase was not surprising given that the deposit return rate in banks reaches 13%, while the inflation rate reached 21.5%, which means losses on savings, which led to To the tendency of citizens to increase the demand for commodities to store them to protect their savings, which requires the need for the central bank to intervene to control the exchange market and eliminate the parallel market to stop the random pricing of commodities, and to reach the inflation targets of the central bank.
According to the Central Bank of Egypt’s statement, global commodity price expectations declined slightly compared to the expectations presented to the Monetary Policy Committee at its previous meeting, and global financial conditions tended towards stability, with several central banks in Al-Kharj indicating the possibility of inflation rates reaching their peak. and start its downward trajectory.
Tariq Metwally believes that it is necessary to offer high-yield savings certificates of more than 20% for a year or a year and a half; To attract citizens to get rid of the dollar and stop speculation on it, and then control the exchange market and eliminate the parallel market.
The price of the dollar rose against the pound by 57% since last February, and the average price of the dollar recorded 24.67 pounds for purchase, and 24.74 pounds for sale at the Central Bank.