Raising Rates Will Negatively Impact An Already Weak Economic Growth: Beltone

Beltone Financial Research unit stated, in a recent report, that the Monetary Policy Committee (MPC) of hiking rates will negatively impact an already weak economic growth.

Last Thursday, the MPC decided to increase the overnight deposit rate, overnight lending rate, and the rate of the CBE’s main operation by 100 basis points to 9.25 percent, 10.25 percent, and 9.75 percent, respectively. The discount rate was also raised by 100 basis points to 9.75 percent.

In a previous report, Beltone recommended to keep the rates unchanged since the inflationary pressures are stemming from cost push factors and that demand is still low to justify a change in monetary policy direction now.

Beltone added that an increase in interest rate will not address cost push factors and would tighten demand and would cause a slowdown in economic growth with a high inflation rate.

Beltone said that it would have been wiser to wait and see how demand reacted and if it would have caused more pressures on inflation to warrant an interest rate hike.

Source : Arab finance