Friday, May 04, 2012
CAIRO (Zawya Dow Jones)--Egypt's central bank kept its interest rates unchanged for the third consecutive time this year, the bank said Thursday, as a slower rate of decline in currency reserves eased fiscal concerns.
The monetary policy committee left the overnight deposit rate at 9.25% and the overnight lending rate at 10.25%, the central bank said in a statement on its website. The discount rate was also left unchanged at 9.50%.
The country's international reserves have slipped by more than half since an uprising that began in January 2011 ousted veteran former president Hosni Mubarak. Now reserves stand at $15.1 billion, enough for just two to three months of imports, according to economists.
But a slowing rate of decline in the reserves and stable dollarisation "is buying the central bank some time before it runs out of ammunition to support a stable [pound]," said Mohamed Abu Basha, an economist at Egyptian investment bank EFG Hermes.
In November, the central bank decided to raise rates by 100 basis points for the first time in two years, in a move seen to ease pressure on the Egyptian pound.
Meanwhile, the country's inflation has remained largely steady. Egypt's urban consumer inflation rate, the most closely watched indicator of prices, fell to 9% in March while the cost of food and beverages, which is the biggest component of the consumer-price index, rose at a slower pace, 10.9% from a year earlier compared with 12.6% in February.
The bank also cut the reserve requirement on local currency deposits to 12% from 14%, to help free up cash that banks can lend to government and business. The government has increased its reliance on domestic banks to cover its borrowing needs after a year of political turmoil ravaged the country's economy and sent treasury bill and bond yields skyrocketing.
"There is no reason to raise rates since inflation is still low, by Egypt's standards, and in any case, raising rates is unlikely to lead to capital inflows," said Said Hirsh, an economist at Capital Economics in London.
Instead deeper concerns over defeat of the government's economic plan in parliament, delays over the International Monetary Fund loan and problems with Saudi Arabia threaten to derail any chance of economic recovery, said Hirsh.
Even if Egypt signs for a $3.2 billion loan with the IMF, it needs to line up funds from foreign lenders to plug a funding gap the government estimates at $11 billion, which means it still needs to find about $8 billion from donors other than the IMF.
-By Farah Halime, Contributing to Dow Jones Newswires, +20 111 499 4453;
Fhalime@gmail.com
Copyright (c) 2010 Dow Jones & Company, Inc.
(END) Dow Jones Newswires
04-05-12 0701GMT
