Hiking interest rate boosts inflation, cripples investments: expert
Central Bank of Egypt -YOUM7 (Archive)

CAIRO: Without prior notice and violating all expectation, the Monetary Policy Committee (MPC) at the Central Bank of Egypt (CBE) decided Thursday to increase the overnight deposit rate and overnight lending rate by 100 basis points to 9.25 percent and 10.25 percent, respectively.

Economists criticized the increased interest rate, arguing that “raising the prices could help hike product prices, negatively impact investment rates, increase state public debts, and promote inflation.”

Beltone Financial Investment Banking published an analytical report Sunday evening that increasing the interest rate would lead to a slow-down in lending rate, hike in production cost and prices, deceleration in growth rate, and surge in inflation rates, Mubasher reported.

The decision could push Egyptian investors to refrain from getting loans to pump new investments, which could cause a slow-down in investment rates and impact growth rates, according to the report.

Over the past hike in interest rates, the average rate of treasury bills’ return – issued Sunday by CBE for a three-month term – soared by 1.04 percent to 11.8 percent, compared to the previous 10.7 percent. This could increase governmental debts since treasury-bills and bonds are considered the governmental instrument for debts.

“It would be better for CBE to maintain interest rates to avoid inflation pressures and increase lending rates,” according to the report.

Financial analyst Ahmed Abu Saada told the Misr News Agency that MPC’s decision violates all expectations especially since the government is seeking to ration governmental expenses and avoid inflation.

“Increasing interest rates by 100 basis points over the soared public debt, totaling to 2 trillion EGP, will add about 20 billion EGP on the government as debts’ service expenses,” Abu Saada said. “It could swallow half of the saved sums of rationing subsidy adopted by the government in the past few weeks.”

Economic expert Abdul Rahman Taha told Al-Marsad Al-Amny news gate that by hiking interest prices, CBE seeks to surround dollarizing accounts as the owners of banks accounts tend for purchasing dollars instead of EGP over its high returns  and low risk.

But the decision could harm the national economy, Taha said and that it could cripple the growth and investments’ rates, boost inflation, and increase the government’s debt.

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