Egypt's Central Bank cuts discount rate in bid to revive economy

Published April 25th, 2001 - 02:00 GMT

The Central Bank of Egypt's board of directors said Tuesday, April 24, it had decided to further reduce the lending and discount rate by half a point to 11 percent amid moves to end an economic slump. Analysts said the decision, which takes effect Thursday, needed to be accompanied by other stimuli such as further privatization of state-owned businesses, which has slowed down in the last few years. 

 

The last cut in the discount rate, from 12 percent to 11.5 percent, took effect only a week ago, on April 17. 

However, the US Federal Reserve then acted on April 18, with the policymaking Open Market Committee lowering the federal funds rate, a target used by banks making overnight loans among themselves, from five to 4.5 percent.  

 

That cut put pressure on the Egyptian pound, and the Central Bank here followed with the new reduction in its rate, an analyst at Commmercial International Brokerage Company (CIBC) said. "It's using the same tool again to increase liquidity on the market and give banks more flexibility in giving out loans to business at lower rates," said Amr Hussein El-Alfy, assistant manager of CIBC's research department. But any reverse of the economic slowdown here will take time, he added. 

 

An economic and market revival depends on a number of factors, such as how much the banks themselves charge for interest as well as on further privatization deals, Alfy said. In the short term, he said, the stock market is awaiting privatization of Helwan Cement and Suez Cement.  

 

In 1991, Egypt embarked on a series of economic reforms, including the partial or full sale of state-run companies, but the program has slowed down in the last few years. Egypt is facing economic stagnation and a liquidity crisis as a result of excessive spending in the public sector and state-run banks, analysts say. Investors are also discouraged by the lack of transparency provided for by the country's economic regulations. —(AFP)  

 

© Agence France Presse 2001  

© 2001 Mena Report (www.menareport.com)

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