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Why Egypt is Fixing Interest Rates: Expert Analysis on Economic Developments

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Economic Expert Comments on Interest Rate Fixing in Egypt

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The Impact of Economic Events on Interest Rate Decision

Economic expert and analyst Hani Abu Al-Futuh discussed the recent decision to fix interest rates in Egypt, stating that it was driven by the country’s volatile and ever-changing economic circumstances.

Central Bank’s Decision to Maintain Interest Rates

Abu Al-Futuh explained that the Central Bank of Egypt had recently announced its decision to keep interest rates unchanged during the Monetary Policy Committee’s latest meeting. This decision was expected and significant, considering the rapid and fluctuating economic developments the country is currently facing.

Reasons for the Ineffectiveness of Interest Rate Hikes

Abu Al-Futuh pointed out that the central bank made this decision due to the ineffectiveness of previous interest rate hikes in controlling inflation or narrowing the inflation gap towards the bank’s target of 7% (±2 percentage points) by the fourth quarter of 2024. These rate hikes have not produced the desired results in combating inflation.

Ineffectiveness of Rate Hikes in Controlling Inflation

The central bank has raised interest rates by 11 percentage points since March 2022. However, core inflation reached 40.4% by the end of August, indicating that rate hikes have proven to be an ineffective monetary tool in controlling inflation.

Timeline of Interest Rate Increases

The Central Bank of Egypt increased interest rates six times between March 2022 and August 2023, totaling 1,100 basis points. These increases were divided into 800 basis points in 2022 and 300 basis points in the March and August meetings of this year.

Causes of High Inflation in Egypt

Abu Al-Futuh emphasized that the high inflation rate in Egypt can be attributed to various factors, with the foreign exchange shortage crisis being the most significant. This crisis has disrupted the accumulation of goods in Egyptian ports and increased the cost of imports, leading to a greater need for production and raw materials.

Comparison with the United States’ Approach

Contrasting Egypt’s situation, Abu Al-Futuh highlighted the United States’ experience, where monetary tightening has gradually reduced inflation. This success prompted the US Federal Reserve to stabilize interest rates in its latest meeting.

Expected Interest Rate Increase

Abu Al-Futuh predicted that the Central Bank of Egypt would raise interest rates at the last meeting of the monetary policy committee in 2023. This decision is closely tied to the government’s efforts to address the root causes of rising inflation, with increasing interest rates playing a crucial role in controlling inflation and stabilizing the overall economic situation.

Cairo Nasser Hatem

Source: RT

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