How will Egypt’s decision to maintain interest rates, raise reserve requirement affect the economy?

The CBE’s Monetary Policy Committee (MPC) decided on 22 September to hold the deposit interest rate steady at 11.25 percent and the lending rate at 12.25 percent for the third consecutive time after raising the rates by three percent in 2022 – by one percent in March and two percent in May – following the onset of the Russian-Ukrainian war.

However, the CBE, led by Governor Hassan Abdullah, raised the RR to 18 percent, up from 14 percent, for the first time since October 2017 when it was raised from 10 percent.

The RR ratio, which is also known as Cash Reserve Ratio (CRR), is set by central banks and represents the percentage of total deposits a commercial bank is required to hold in reserve – predominantly as deposits with central banks with no interest in return.

Central banks usually lower the RR to give banks more money to lend and boost the economy and raise the ratio when they need to reduce the money supply in an economy by decreasing the lending power of banks, and control inflation by slowing the economy down.