Raising interest rates shakes markets, disturbs business community

Egypt’s Ministry of Finance diversifies the sources of financing the budget deficit from the domestic and international markets, as borrowing from abroad is less expensive than the domestic market now, according to an official in the ministry.

The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) decided to increase the overnight deposit and lending rates by 200 basis points from 14.75% to 16.75%, and from 15.75% to 17.75%, respectively.

Member of parliament (MP) Mohamed Fouad, a member of the plan and budget committee in parliament, predicted that the CBE’s decision will add more than EGP 30bn to the state budget’s debt service for fiscal year (FY) 2017/2018.

When the overnight deposit and lending rates are increased by 100 basis points, the debt service will rise by more than EGP 15bn, threatening the country’s fiscal policy. This decision came in response to the demands of the International Monetary Fund, according to Fouad.