The Governor of the Central Bank of Egypt (CBE) Farouk el-Oqda decided yesterday morning to keep interest rates on deposits and loans unchanged instead of cutting them as expected. This must have been a shock for the government. The latter, and in particular its economic group, had been betting since the onset of the global financial crisis that Dr. el-Oqda would do what almost all central banks worldwide have done. Indeed, the US Federal Reserve, which is the equivalent of the CBE, cut the interest rates to 0%, which had previously happened only in Japan in the 1980s. When central banks take such measure, they want to encourage people, especially businessmen and investors, to borrow more, as they will pay fewer interests. This would first of all revive the markets, as the money borrowed is injected into the markets themselves, and then create job opportunities, as every investor would not keep the money in his or her house but would instead use it to do business. The government expected this to happen in Egypt as well. This, though, would happen only if Dr. el-Oqda, who is also president of the CDE monetary policy committee, took the decision to cut interest rates. The governor, however, had a different opinion and let the government down. He has some remarks about the government's financial policy, as he thinks it has pushed the inflation rate up. Moreover, he believes that interest rates can not be cut with an inflation rate which reached 20.3% in November compared to 20.2% last October. He thinks that if interest rates were cut, most low-income Egyptians would bear the consequences of this decision. The governor wants the government to curb public spending, as he thinks public money is sometimes spent unnecessarily. He also wants the government to take practical measures to cut prices. When this happens, the inflation rate will go down automatically and the CBE will then decide to cut interest rates. The paradox is that on the same day on which the CBE came out with its decision, Minister Rashid announced a cut in the prices of 17 commodities by as much as 39% for some of these products. This reduction will certainly draw the governor's attention, but he will think this is not enough. What is needed is more reductions, so that the CBE, at the next meeting of its monetary policy committee, will think seriously about cutting interest rates, as the government will have done (at least partially) what it has to do. Many are of course against the governor's decision, while many approve it and think that this was the best thing to do in light of global economic conditions and that such kind of decision requires much wisdom. What draws one's attention, though, is that this is perhaps the first time that the government has not been able to do what it wanted – in spite of its supreme power - because a CBE governor has stood up to it and said out loud "No". It has been said that ruling bodies back Governor el-Oqda's decision. I think, though, that his decision relies more on his professionalism and his capacity to take such decision and to defend it, even if this decision runs counter to what many influential people inside and outside the government wanted.
