Egypt's business community awaits more interest rates' cuts to boost investment

Monetary easing cycle to create jobs, positively reflect on middle class, say experts

In Egypt, a country with a population that exceeds the 100 million mark, job creation is crucial for economic development, particularly when the authorities are wrapping up a tough economic reform programme implemented in coordination with the International Monetary Fund (IMF). The Central Bank of Egypt (CBE) cut interest rates by 1.5% on Thursday in a long-awaited step that the business community hopes it will be gradually continued.
According to many experts surveyed by Daily News Egypt, the more CBE cut interest rates, the more investment will flow, jobs will be created, hence people will reap the fruits of economic reforms, after more than three years of suffering from price hikes.
DNE raised the question of ‘what are the most convenient interest rates that can prompt investments' flows?'. Experts responded that interest rates below the 10% mark, would boost business growth, encourage new investors to enter the Egyptian market, calling on CBE to their monetary easing cycle over the next period.
The recent interest rate cut will positively reflect on the businesspersons' decisions to raise the production capacity of their factories, board member of the CBE, Fakhry El-Fekki, said, adding that the businesses will get credit with lower cost and will inject new investments in the medium term.
"I think that CBE's Monetary Policy Committee (MPC) will continue the interest rate cuts cycle. MPC cut interest rates by 1% last February and the Thursday cut was the second in 2019," El-Fekki mentioned.
On Thursday, CBE cut interest rates by 1.5%, slashing overnight deposit rate, lending rate, and the rate of the main operation to 14.25%, 15.25%, and 14.75%.
The lower trend of inflation encourages MPC to cut interest rates, as MPC increased interest rates by about 7% following the reforms procedures including the implementation of the value-added tax (VAT) and gradual cut of the fuel subsidies that led the inflation to hike by over 30% in mid-2017, El-Fekki said, asserting that the middle class of the Egyptian people suffered a lot over the recent years.
The positive impact of 2019's expected interest rate cuts on direct investment indicators will be obvious by the end of 2020, Radwa El-Swaify, Head of Research at Pharos Holding told Daily News Egypt, noting that the latest economic indicators assert the importance of interest rates cuts over the next meetings of the MPC.
Notably, Egypt's year-over-year (y-o-y) headline inflation slowed to 8.7% in July. The US Federal Reserve cut rates by 0.25% on 31 July which supports CBE's resumption of its monetary easing policy.
For his part, Ambassador Gamal Bayoumi, secretary-general of the Arab Investors Union (AIU) said that the Egyptian market hopes to get back to the previous average of interest rates of 6%, explaining that when interest rates are very high, it's easier for citizens to deposit their savings in banks instead of investing them.
The interest rates are low in countries like the US to encourage people to invest their savings, he noted, adding that the interest rates cut is a step in the right direction, especially that the inflation is declining.
The former head of the Middle East at the World Economic Forum in Geneva, Sherif El-Diwany, agreed with the aforementioned opinions praising the CBE gradual decision of interest cuts, adding, "interest rates cut by 1.5% is higher than our optimistic expectations of only 1% which asserts CBE's aims to boost investment flows."
The recent interest rates cuts should be accompanied by additional steps to enhance the investment climate to attract more investors, El-Diwany mentioned, adding that Egypt's private sector needs more encouragement to inject further investments in the market.