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Egypt's monetary policy should continue inflation targeting: IMF - Daily News Egypt

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Egypt’s monetary policy should continue inflation targeting: IMF

High interest rates hinder attracting more FDIs, says GAFI’s former CEO

Egypt’s monetary policy should continue inflation targeting in line with the Central Bank of Egypt’s (CBE) medium-term inflation objectives, Mission Chief for Egypt at the International Monetary Fund (IMF) Subir Lall, told Daily News Egypt commenting on the recent decision of the CBE to cut interest rates.

The CBE’s decision to reduce interest rates by 150 basis points (bps) reflects favourable inflationary trends in recent months, Lall commented, noting that the policy stance should continue to be adjusted as needed based on the CBE’s assessment of expected inflation.

Inflation continued to decline in July 2019 with headline inflation falling to 8.7%, compared to 14% in May, while core inflation decreased to 5.9% in July, compared to 7.8% in May of the same year, Lall noted.

The CBE decided to cut interest rates by 1.5% on 22 August 2019, slashing overnight deposit rate, lending rate, and the rate of main operation to 14.25%, 15.25%, and 14.75%, respectively. 

Furthermore, the CBE’s Monetary Policy Committee mentioned in August 2019 that the interest rates cut comes as Egypt’s annual headline and core inflation continued to decline to record 8.7% and 5.9%, respectively in July 2019, the lowest rates in almost four years. It comes in line with the recently implemented fiscal consolidation measures that reached cost recovery for most fuel products.

The same view was echoed by Mohsen Adel, former CEO of the General Authority for Investment and Free Zones (GAFI). He told Daily News Egypt that the exceptionally high interest rates were one of the burdens that hindered attracting foreign direct investments (FDIs) to the Egyptian market.

The recent interest rate cut will promote local investments and encourage foreign corporations to boost their businesses in the Egyptian market, Adel emphasised, noting that there is a global direction to slash interest rates to boost economic growth.

“In Egypt, I think that agriculture, pharmaceuticals, and the electronic production sectors will be the main fields to benefit from additional funds of the banks due to recent interest rates’ cut,” Adel said, asserting the importance of activating the amendments of the Investment Law to further attract investments.

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