Higher interest rates threaten possibility of new investments in Egypt

Sunday 19-06-2016 06:14 PM

Central Bank of Egypt (CBE) - Archive

CAIRO, June 19 (Aswat Masriya) – Investors have said that the Central Bank of Egypt's (CBE) decision to raise interest rates by 100 basis points will have a negative impact on the cost of loans, which is one of the factors affecting investment attractions.

"The decision is not encouraging for investments,” Mohammed al- Damaty, the Managing Director of Arab Food Industries "Domty," told Aswat Masriya.

The CBE decided last Thursday to raise interest rates on bank deposits and loans by 100 basis points to curb inflation. Interest rates have now reached 11.75 per cent of the deposit and 12.75 per cent for loans, their highest level in at least ten years.

"The problem is that the central bank does not have many solutions to deal with the problem of prices, but we hope that this decision does not affect the willingness of investors to expand [their investments] in the coming period,” Damaty said.

Mohammed Shaaban, the head of investors in the Sixth of October City Association said that raising interest rates "increases the burden on companies in this difficult economic juncture."

Shaaban said that higher interest rates would encourage people to deposit their money in banks rather than risk investing it in an industrial project.

The government expects government investments to increase about 50.1% in the next fiscal year to 107 bln EGP, of which about 64 bln EGP are financed by the state budget. It also aims to increasing private investments to 292 bln EGO, whice would be a 24 per cent increase compared to the current fiscal year.

Rami Urabi, a macro-economic expects the high cost of taking out loans, which is an effect of higher interest rates, to lead to a decline in the levels of investment and thus growth.

Urabi maintains that the CBE has made the suitable move however, after the steep rise in inflation rates. The CBE’s main duty is to “keep the stability of prices,” he said.

The annual inflation rate for urban consumers has jumped by 12.3 per cent in May, compared to 10.3 per cent in April, according to data from the Central Agency for Public Mobilization and Statistics.

Monthly inflation has also made that most staggering increase since July 2014, rising by about 3.2 per cent in May compared to April.

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