Financial experts welcomed Central bank of Egypt’s (CBE) latest decision to raise interest rates on deposits and loans in Egyptian pound, pointing out that it is ideal to combat inflation and undermine dollarization, especially after sharp increase in dollar exchange value.
CBE’s monetary policies commission (MPC) has decided to increase base interest rates on deposits and loans by 1.5 per cent -to record an overnight score of 10.75 per cent and 11.75 per cent respectively. It decided to raise depositing and discount rates by 150 basis points (bps) -to reach 11.25 per cent, as well as increasing CBE’s main operation by the same percentage.
In a detailed statement, MPC confirmed that raising base interest rates in CBE targets undermining inflation projections. It keeps an eye on economic developments, especially those related to monetary policy, and the impact on inflation, assuring that this new decision will result onto stable prices on the medium-term.
Ahmed El-Eteify, economist and financial market expert, said that CBE’s decision to increase interest rates by 1.5 per cent is positive and logical, yet it came higher than expected. He pointed out that the most significant reasons behind that raise are great fears of more devaluation in pound against the dwindling dollar and to combat high inflation rates.
In a statement to MEO, El-Eteify said that this decision will affect companies’ finance costs, although most of them do not receive funds form banks, but through increasing capital or launching public offerings. Some major companies are even pursued by banks for competitive loans that could be still less than those of CBE.
He added that the finance cost problem will be harder for unlisted companies in EGX, so it is likely that new public offerings will be seen soon.
Mohamed Saeed, IDT’s Managing Director said that CBE’s decision was expected, but the percentage was “against all odds”, since experts and analysts projected a 0.5 – 1 per cent increase.
Saeed said to MEO that it is a proactive decision against possible higher inflation rates, after devaluating the pound. It targets as well undermining dollarization which CBE fears that people will head to following the recent sharp increases in dollar exchange value.
MPC mentioned that flexibility in exchange rates helped restore clients’ confidence, attract foreign investments and increase economic growth rates.
He concluded that the foreign currency exchange market’s flaws -before adopting a flexible policy subject to supply and demand- created a wide gap between official and unofficial exchange values. This had an impact on domestic prices, which proves that most importers rely on buying dollars from parallel markets.
