First Bank Explainer: How does Egypt determines interest rates?

The interest rate is the star of this year; as many central banks around the world tended to raise the interest rate during the current year, due to the repercussions of the Russian operation in Ukraine in including the inflation waves witnessed by the whole world, in addition to the many global crises such as the supply chains crisis.

The central banks are tasked with maintaining a certain level of stability within the country's financial system.

The interest rate is a major tool for central banks in the world to adjust the money supply or the quantity of money circulating in order to control the inflation and enhance the economic activity.  The central banks tend to control the quantity of money in circulation to achieve economic objectives and affect monetary policy.

The quantity of money circulating in an economy affects both micro- and macroeconomic trends. At the micro-level, a large supply of free and easy money means more spending by people and by businesses. Individuals have an easier time getting personal loans, car loans, or home mortgages; companies find it easier to secure financing, too.

How does Egypt determines interest rates?

The Monetary Policy Committee of the Central Bank of Egypt determines interest rates in meetings that are scheduled in advance and are known throughout the entire year.

The Monetary Policy Committee studies the supply and demand over a period of time.

 If the demand for goods and services raise significantly in a way that cause a rise in the prices, the committee resorts to raising the interest rate to reduce the money supply in order to control the prices of goods and services.

On the other hand, if the movement of buying and selling has slown in the market, the committee will reduce the interest rate to increase the money supply and stimulate demand for goods and services.