Monetary Policy Orientation and Stimulating the Finance of Industrial Investment in Egypt

Document Type : Original Article

Authors

Macroeconomic policy center, Institute of national planning

Abstract

The monetary policy is considered one of the economic policies that mainly aim to achieve macroeconomic stability, and the interest rate is one of its important transmission mechanisms to the real economy. It is one of the determinants of investment in general and industrial investment in particular. This study focuses on "the role that the interest rate can play as a transmission mechanism for monetary policy in stimulating the financing of industrial investment in Egypt in light of international experiences. The study found that there are a number of challenges that limit the ability of monetary policy tools, specifically the interest rate, to stimulate the financing of industrial investments. The focus of Egyptian monetary policy on targeting inflation, despite its importance, may limit its ability to further reduce interest rates if the changes push domestic or global inflation rates up, and thus the trade-off will be in favor of containing inflation. The initiatives launched by the Central Bank of Egypt (CBE) cannot continue as its financing represents a burden on its budget. Reducing interest rates cannot stimulate the financing of industrial investment without finding radical solutions to the challenges facing the industrial sector, as well as the business environment as a whole. The study confirms the importance of having a detailed strategic framework targeting industrial development over the coming years. Designing financing and non-financing policies will be based on the strategic framework as well as the sectoral needs. There is a need for long term financing mechanisms such as development banks.

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