The Central Bank of Egypt (CBE) plays a crucial role in maintaining economic stability through its balanced management of monetary policy, including interest rates and money markets. Its primary objective is to contain high inflation and reduce the prices of goods and services. This becomes especially critical during challenging economic conditions, external shocks, and geopolitical risks.
CBE’s impact on market stability, price reduction, and inflation control is evident through several measures adopted in coordination with state agencies and economic working groups, and the agreements it concluded with international economic and financial organisations.
In this regard, we could mention some of the most important factors, starting with the exchange rate liberalisation on 7 March.
Since the decision was issued, CBE has been constantly keeping an eye on securing the foreign exchange necessary to pay and settle all due documentary credits that must be collected at official prices and ensuring the availability of sufficient balances in the interbank market. This has led to the disappearance of pending requests for foreign exchange, finally allowing the release of strategic goods, production requirements, and raw materials that were stuck at Egyptian ports.
Of course, this move led to a triple blow, causing the top demand elements in the parallel market to be banished, and resulting in the consequent drop of the USD rate. But at last, goods became available, and their prices fell in a rather gradual manner.
On the other hand, and in conjunction with the announcement of liberalizing the exchange rate, CBE adopted a very restrictive interim monetary policy concerning the interest rate, raising it during the first quarter of this year by 800 basis points to address high inflation and contain it to gradually reach its targets. That way, it was able to control the rate of inflation and reduce prices. CBE then continued to allocate 25% of the banking system’s financing portfolio to small and medium financing activities, at low rates of return. The result of that was a decline in the prices of the products of those sectors and their availability in the markets.
We also know how CBE gives state-owned banking system units the greenlight to issue savings certificates with exceptional rates of return to compensate savers in the household sector for the high rate of inflation on the one hand, and for those banks to absorb liquidity and reduce the demand side to contain inflation on the other hand.
CBE also cooperates with the Ministry of Finance through the units of the banking system, to implement its new financing initiative for industrial and agricultural activities. This massively helps reduce the prices of goods for citizens as a result of the expansion of the volume and financing opportunities for this type of company.
CBE continues to intervene in open market mechanisms to regulate the monetary supply and withdraw excess liquidity from the banking system units. It has also modified the system of accepting weekly deposits.
All of this aims to ensure price stability and precise control of the liquidity rate and the quantity of payment provided in the market, thus achieving control of the money supply and the inflation rate.
At the same time, CBE continues to adopt policies to support economic growth, stimulate investment, and generate jobs. It is also striving to complete and make successful economic and structural reform programs, in cooperation with international financial institutions, which can lead to increased production, enhanced general economic activity, and lower commodity prices.
