The Central Bank of Egypt’s (CBE) decision to raise interest rates is temporary and will last for only two or three months, and then the bank will decrease it again after it receives the second tranche of the International Monetary Fund (IMF) loan, said a parliamentary member in the Egypt Support Coalition.
He told Daily News Egypt that the CBE is expecting the second tranche of the IMF loan worth $1.250bn in July.
The CBE’s Monetary Policy Committee (MPC) decided on Thursday to raise the overnight deposit rate, the overnight lending rate, and the rate of CBE’s main operation by 200 basis points (2%) to 18.75%, 19.75%, and 19.25% respectively.
Egypt had received the initial $2.75bn tranche of the loan in November 2016, as part of a deal to obtain a loan of $12bn over three years.
The parliamentarian, speaking on condition of anonymity, said that the coalition has discussed with the government the latest CBE decision and its impact on the investment climate in Egypt and the targeted budget deficit by the end of the current fiscal year.
He added that the coalition criticized the government for the recent price hike, which led to an increase in inflation to 30%, prompting the CBE to intervene to control the inflation.
Ahmed Kojak, deputy minister of finance for monetary policies, expected that the inflation will increase by 3-4.5% after increasing fuel prices.
The Ministry of Finance announced in its financial statement that the targeted debt service in the current fiscal year amounts to EGP 381bn.
Yasser Omar, deputy of the Parliament’s Planning and Budget Committee, expected that the debt service will increase by EGP 95bn to reach EGP 476bn by the end of the current fiscal year.
Omar added that the CBE’s decision would contribute to reducing the dollar price against the pound, as holders of dollars will sell to benefit from the high interest rate on the pound; however, it would negatively affect the budget deficit and investment.
The CBE’s recent decision reflects a lack of coordination between the government and the bank, especially as the CBE had increased the interest rate last November by 7%, which did not led to a decrease in inflation, according to Amr al-Guhari, deputy of the Parliament’s Economy Committee.
The CBE said in a statement on Thursday that it would make decisions that would reduce inflation to 13% by the end of the fourth quarter of 2018. Al-Guhari said that the Egyptian economy faces the threat of inflationary recession as a large number of companies suffer a decline in sales due to high inflation.