The President of the Small and Medium Enterprises Investors Union and Vice President of the Investors Association, Alaa al-Sakaty, said that raising interest rates constitutes a burden on investment as it increases the cost of funds and thereby reduces the direct investment process.
The Monetary Policy Committee of the Central Bank of Egypt on Thursday announced raising the overnight deposit and lending interest rates and the bank’s main operation rate by 200 basis points (two percent) to reach 21.25 percent, 22.25 percent and 21.75 percent, respectively, as well as raising the credit and discount rates by 200 basis points to reach 21.75 percent.
Sakaty explained that the decision poses significant burdens on investment for the business community, as it reduces the productivity of businessmen and investors, and limits their purchase of equipment and production inputs.
However, he noted that raising the interest rate is a step that had to happen to withdraw cash liquidity from the market to stop the speculation taking place in the commodity and gold markets – but only for a specific period and not in the long term.
The step of devaluating the currency must be taken, Sakaty added, because the existence of parallel markets for the currency constitutes destruction for the Egyptian market and for businessmen, so it must be eliminated by liberalizing the exchange rate.
Liberalizing the exchange rate will not have a significant impact on the market, he said, as people will still use the parallel market exchange rate and not the official one in all transactions.