Malcom X the Ballot or the Bullet Analysis

The Inadequacy of financial intervention in Egypt trimmed down the usefulness of monetary policy in justifying opposing shocks.

One way to justify depressing economic shocks is to relax the monetary policy by expanding the money supply and reducing interest rates for a better outcome that is reduced costs of financing an investment in the country. Monetary policy’s efficiency, however, is caused by the effectiveness of financial intervention.

If domestic finance specially the one handed to the private sector have a habit of falling considerably during the low stages of a business cycle for the reasons unrelated to the monetary policy then , rising the level of money supply will in most cases result in surplus liquidity in the banking system than in higher investments rates. These elements of the supply of finance to banks aid in explaining why rates of growth in Egypt were intensified and relatively high in the first half of 1990s, but decelerated at the end of the decade.

Macroeconomic stabilization stopped the expansion of banking credit to the government, This sudden action allowed the banking system to have additional resources and lending it to the private sector. Private sector had additional finance so this led to increase in the economic growth rate, but at the same time as a result of inadequate estimation of the capacity of the banking system plus the ongoing process of credit allocation, the quality of lending money was poor. Afterwards , the system started to become dysfunctional.

After the Central bank of Egypt slackened the monetary policy, deposits in banks started to become higher as a percent of GDP , in spite of this , also the interests on lending deposits has been widely spread. Moreover, during the slowdown of Egypt�s growth rates, the Egyptian government implemented an expansionary fiscal policies which in turn escorted the economy to advanced budget deficits in addition to more levels of borrowing by the public sector. As discussed earlier, our country is going through a transitional stage accompanied by more share of the people that can work , this can result in acceleration in both rates of private savings and labor force.