This week China, India and Poland have taken several decisions to reduce interest rates on loans and deposits by different percentages. The objective is to provide more liquidity in the markets to face the repercussions of the world financial crisis as much as possible. The Governor of the Central Bank of Egypt must have certainly groped for his pocket when he read such news. He then must have compared them with other similar news saying that central banks all over the world took the same decisions, especially in Britain, the EU and the US. First of all, it must be said that no one, including the president, has the right to intervene in the central governor's work. There is an agreement among world economists and professors that no one should mix financial policies, which are at the core of any government's work, with monetary ones, as they are exclusive competence of central banks. This independence from the government would allow the bank to protect the currency Many may have be astonished at the President speech before the People's Assembly and the Shoura Council [the two chambers of the Egyptian parliament], as he called on the government to take the necessary action to cut interest rates on loans, especially those loans that banks grant to investors who are going through a crisis these days. The goal would be to provide these businessmen with the necessary liquidity to carry out their business. In Egypt, the president is the head of the executive authority, namely the government. Through these declarations, he did what economists and professors do not like. Thanks to Dr. Farouk el-Oqda, the Central Bank has regained its strength and the monetary policy has become independent once more. He has also been protecting the Egyptian pound versus the US dollar and the Euro and never takes his eyes off the inflation indicator in order to try to reduce it. However, he must also realize that when the president makes such a call in his speech, he is looking at the issue from a more general and comprehensive economic prospective. There is indeed the wish to revive investments in this country in light of a global stagnation and depression which could very much reduce investment activities and volume. And this would not be good at all for the whole economy. Inflation is hated in every era and the central bank must undoubtedly try to contain it and, in doing so, must be supported by the state. Sometimes, though, you may have to choose between two options: either you cut interest rates on loans in order to boost investments or you keep interest rates as they are in order to try to reduce the inflation rate on the long term. In such a case, you should definitely go for the first option, as this would boost the markets, create job opportunities and expand investments in all directions. This is worth making some sacrifices, like doctors do when they have to sacrifice the child for the mother or like patients do when they prefer to treat their heart problems rather than their baldness. So, it is just a question of priorities due to the moment we live in.
