CBE’s MPC To Hold Last Meeting Headed By Farouk El-Okdah Tomorrow
The Monetary Policy Committee at the Central Bank of Egypt (CBE) holds its first meeting in 2013 next Thursday to decide upon the overnight deposit and lending rates. This meeting is the last meeting to be headed by Farouk El-Okdah who resigned because the new constitution states that a senior government official cannot take more than two terms in office and El-Okdah occupied this post for three consecutive terms. Hisham Ramez will assume the responsibilities of the Governor of CBE position by the beginning of next February.
The MPC left overnight deposit and lending rates unchanged at 9.25% and 10.25% respectively, as well as repo rates at 9.75% and credit and discount rates at 9.5% in its meeting on November 24th 2011, after overnight deposit and lending rates were kept unchanged at 8.25% and 9.75% as well as repo rates at 9.25% and credit and discount rates at 8.5%.
The MPC decided to keep overnight deposit and lending rates at .25% and 10.25% respectively, as well as repo rates at 9.75% and credit and discount rates at 9.5% in its last meeting on December 6th 2012 for the eighth successive time.
Experts expected the MPC to leave overnight deposit and lending rates unchanged because of the current political and economic confusion in the country as well as the ongoing market recession and economic slowdown.
Some experts noted that raising interest rates will hinder investment opportunities and increase the burdens of the country’s local debt which reached 1 trillion and 331 billion. Other experts demanded raising interest rates to increase foreign cash reveres, encourage customers to save Egyptian pounds and reduce the dollarization process.
Ahmed El-Khouly, head of treasury sector at Housing and Development Bank, expected CBE to adopt the same monetary policy by leaving interest rates unchanged especially that the next meeting will be headed by Farouk El-Okdah.
El-Khouly ruled out that CBE will raise the interest rates amid the unclear political and economic scenes and the market recession. Raising interest rates will increase lending costs and thereby hinder investment, he noted, adding that the increase in interest rates will raise returns on T-bills which will accordingly increase local debt burdens which exceeded EGP 1 trillion.
The increase in interest rates will not have a significant impact in eliminating the dollarization process as the interest rate on local currency is already high as it rose to 12%, compared to1.1% on dollar currency, he continued.
The banking expert Bassant Fahmy stated the CBE shall raise interest rates to attract more funds and reduce the dollarization process.
Raising interest rates is one of the solutions that will lead to increasing the country’s foreign reserves as customers will convert their foreign currency funds to local currency funds to tap into the high interest rates and this will accordingly reduce demand on dollar and raise foreign cash reveres.
The MPC is composed of seven members: Governor of CBE, two deputies of Governor and four members of the board of directors. The main target of MPC is stabilizing the prices.
The MPC takes its decisions after reviewing economical and financial reports and studies prepared by the Monetary Policy Unit at CBE. These reports and studies include the latest local and international developments and estimate all risks related to inflation.
