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MONETARY
POLICY STATEMENT
June 2, 2005
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Monetary Policy Objective Law no. 88 of 2003 of the “Central Bank, Banking Sector and Monetary System” entrusts the Central Bank of Egypt (CBE) with the formulation and implementation of monetary policy, with price stability being the primary and overriding objective. The CBE is committed to achieving, over the medium term, low rates of inflation which it believes are essential for maintaining confidence and for sustaining high rates of investment and economic growth. The Government’s endorsement of the objective of price stability and its commitment to fiscal consolidation is quite important for achieving this objective. Monetary Policy Framework The CBE intends to put in place a formal inflation targeting framework to anchor monetary policy once the fundamental prerequisites are met. This will further enhance the predictability and transparency of the monetary policy in Egypt. In the transition period, the CBE will meet its inflation objectives by steering short term interest rates, keeping in view the developments in credit and money supply, as well as a host of other factors which may influence the underlying rate of inflation. The CBE strongly believes that real negative interest rates are inconsistent with the ongoing effort to reduce inflation rates. The continued reduction of the inflation rates that Egypt has witnessed in recent months is important in order to guide long-tem inflation expectations. Monetary Policy Implementation Monetary policy decisions are taken by the CBE’s Monetary Policy Committee (MPC), which has nine members comprising of the Governor of the CBE, the two Deputy Governors, and six members of the Board of Directors. Decisions are implemented through a set of policy instruments and procedures. The CBE will use two standing facilities (an overnight lending facility and an overnight deposit facility) as its main policy instruments, providing the outer bounds of a corridor within which the overnight inter-bank rate will fluctuate. The CBE will continue to manage market liquidity through its open market operations. Monetary Policy Decisions The MPC will normally convene on the first Thursday of each month for the purpose of deciding on its policy rates and will issue a communiqué immediately following its meetings. Should a Thursday fall on a public holiday, the MPC will meet on the following business day.
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