Roundtable Discussions

Priorities for Monetary Policy: The Scope for Inflation Targeting

Date : 5/9/2012

Speakers : Magda Kandil (ECES), Faika El Refaie (Former Sub-Governor, Central Bank of Egypt), Mahmoud Abul-Oyoun (Central Bank of Egypt), and Rania Al-Mashat (Central Bank of Egypt)

The continuous rise in the cost of living constitutes a serious challenge to most Egyptians, especially those who suffer from deteriorating real income and limited scope to expand opportunities in the context of a growing economy. Further, high inflation has eroded Egypt’s export competitiveness in the face of continued appreciation of the real exchange rate of the pound, despite successive waves of nominal depreciation. More recently, the conduct of monetary policy has been challenged by economic slowdown in the aftermath of the January 25 Revolution. Fiscal dominance also poses a serious challenge for the independence of the Central Bank against a backdrop of widening fiscal deficit which could potentially increase inflationary pressures and exert depreciation pressure on the exchange rate of the Egyptian pound. Moreover, excessive domestic financing of the fiscal deficit has increased the cost of borrowing and crowded out private activity. This roundtable discussion discussed the efforts undertaken by the Central Bank to adopt an inflation target regime and highlighted the challenges facing monetary policy at the current juncture.