The ups and downs of Egypt’s interest rates: What does the central bank want?

Source: MadaMasr

Author(s): Osman El Sharnoubi

Original Link:

The Central Bank of Egypt’s Monetary Policy Committee will meet later today to decide whether to cut interests rates for the second time since January 2015.  The 1-percent drop the committee instituted last month had long been anticipated, as interest rates have climbed by 7 percentage points since the decision to float the country’s currency in November 2016.

The Central Bank of Egypt (CBE) has hued close to the same rhetoric since the float, pegging the ups and downs of interest rates to Egypt’s soaring inflation. The surprising 3-percentage point hike in July 2017 was accompanied by the bank’s assertion that the move aimed to curb the soaring inflation, which had climbed to an annual rate of nearly 35 percent following the slash in fuel subsidies and currency devaluations that accompanied the structural adjustment deal with the International Monetary Fund.

From that July policy meeting until last month, the overnight deposit rate has held at 18.75 percent and the overnight lending rate at 19.75 percent. Despite the gestures toward curbing inflation, many economists asserted that the high interest rates were ineffective in lowering inflation, adding that they had led to a decrease in investment amid Egypt’s financial recession…

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