The US Federal Reserve cut its key lending rate by 50 points on Wednesday in its first reduction since the onset of the Covid-19 pandemic, sharply lowering borrowing costs shortly before November's presidential election.

Gulf central banks followed the Fed and cut interest rates by 25 to 50 points, while UK interest rates have been left unchanged at 5 percent by the Bank of England.

Hot money dilemma
 

Hany Abou El-Fotouh, economist and banker, told Ahram Online that cutting interest rates will attract hot money to emerging markets including Egypt, highlighting that it is not the only factor as political and security stability play a role.

He added attracting hot money could support the value of the Egyptian pound and reduce the cost of government and private funding.

Meanwhile, Ibrahim Mustafa, an economist, said that cutting interest rates will attract hot money to emerging markets including Egypt in the long run.

Mustafa noted that lowering interest rates will reflect on the cost of borrowing in dollars, resulting in lower debt volume and a market surge.

He added that Egypt is not tied to the federal interest rate but is linked to the volume of debt, highlighting that the Egyptian government aims to reduce interest and inflation in the future.

Abou El-Fotouh noted that the US decision to lower interest rates may increase FDI in emerging markets including Egypt, adding that the FDI would flow in sectors dependent on external finance.

This would stimulate Egypt's economic growth through several channels, including increased investment and consumption, according to Abou El-Fotouh.

However, the impact of this decision on economic growth depends on many other factors, such as the state of aggregate demand, the availability of goods and services, and the efficiency of the private sector.

The economist explained that despite the potential benefits of the interest rate cut, it could increase inflationary pressures in the medium term, especially if the Egyptian government does not take sufficient measures to control aggregate demand.

Gold prices increase
 

According to Gold Price.Org, gold prices in the US increased from 2,568 per oz on 18 September to 2,587 per oz on 19 September, with a growth rate of 1 percent.

According to the J.P. Morgan Global Research estimates, gold is expected to reach $2500 per oz by the end of 2024.

The dollar index (DXY), which measures the dollar against a basket of six currencies, was down 0.33 percent at 100.68, sliding to its lowest in more than a year of 100.21 in the previous session, according to Investing.com.