ABSTRACT
The reorientation of monetary policy in Egypt towards price stability came with the adoption of the Economic Reform and Structural Adjustment Programme (ERSAP) in 1991. Key elements of the reform included a large fiscal adjustment, an exchange rate anchor supported by a tight monetary policy and structural reforms including some price liberalisation. Yet, in pursuit of this goal, monetary policy was overburdened with inconsistent objectives including the short-term stimulation of output, exchange rate stability, financing the fiscal deficit and preserving the solvency of the banking system. Naturally, monetary policy was not always successful in maintaining low inflation, particularly since the announcement of the float in mid-FY03.1 Since then, double-digit inflation has spiked three times, peaking in July 2008 at a 20-year high of 22 per cent.
