CBE governor explains new monetary policy
Egypt, Economics, 12/26/2002

Mahmoud Abul- Oyoun, Governor of the Central Bank of Egypt (CBE) said it is likely that a new cut in the banking interest rate will be effective in case the need arises.

The latest decision cutting down the lending and discount rate by 1 per cent on the part of the CBE and the response by a number of banks to the decision was one of the most needed steps, given the sustained backtracking of interest rates worldwide, he added.

Addressing the capital market symposium devoted for the future monetary policy in Egypt, Abul Oyoun said the new CBE bill takes into account providing an interest on reserve assets held by banks with the CBE.

He said the decision on cutting down lending and discount rate as pivotal to harmonize the needs of the market and depositors, mainly the limited-income brackets, who depend considerably on their deposits, as (household deposits represent the lion's share of the volume of deposits held in banks).

He added that the CBE is ready to affect a new cut in lending and discount rate if the market responded positively.

Abul- Oyoun pointed out that banks have never stopped offering credit facilities to economic projects and activities, adding that it is quite known that banks will never be able to cover costs of big deposits in hand without investing them properly.

He said the aim of cutting down interest rate is to encourage banks to invest the large liquidity available to them in productive projects serving the national economy in increasing growth rates and providing new job opportunities.

The goal of the new monetary policy considered by the CBE is to maintain stable prices, reinforce the banking system and improve performance of the economy in general, he said, he added that a committee is set up for the new monetary policies by a number of the CBE board members.The committee will draw up policies and taking decisions, indicating that the plan aims at separating banks' supervision from the monetary polices department.

The CBE governor said, under the new policy, the CBE would play a wider role in influencing the interest rate, channelling national savings and encouraging their investment.

The new policy also introduces new instruments for financing state budget deficit through generalizing the use of what is called "key investors" in the stock market.

Abul- Oyoun said the upcoming stage would witness greater attention to technological developments and enhancing the flow of information through the establishment of the CBE electronic information network that is currently in its experimental stage.

He also said that one of the goals of the new monetary policy is to secure flexibility of interest rates as well as ban and overcome restrictions that could hinder their flexibility in the short and medium terms.

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