Sunday, Jun 17, 2012
(This article was originally published on Thursday.)
CAIRO (Zawya Dow Jones)--Egypt's central bank kept its interest rates unchanged for the fourth consecutive time this year, the bank said Thursday after its monetary policy meeting, as a slower decline in the country's currency reserves eased concerns about the economy.
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%.
However, the bank said as part of its monetary policy framework, it has decided to introduce a 28-day repurchasing agreement, or repo, starting July 10, at variable rate tenders, with a minimum bid equal to the seven-day repo rate.
The country's international reserves have plunged by more than 60% since the beginning of a revolution that began in January 2011. Reserves stand at $15.52 billion, enough to cover just two to three months of imports, economists have said.
The decision to hold interest rates was largely in line with economists' expectations, but was overshadowed by the rising tensions following Thursday's recommendation by the constitutional court that parliament should be disbanded.
Said Hirsh, an economist at Capital Economics in London, said in a note to investors that "as political conditions worsen, pressures on the [Egyptian] pound will intensify."
The central bank has come close to exhausting its monetary policy options in an effort to raise enough cash to cover its debt requirements. Last month, the bank lowered the reserve requirement on local currency deposits for the second consecutive month, to 10% from 12%, to shore up cash for banks and businesses.
It has also been increasing sales of repurchase agreements to mop up liquidity in the market.
"I think clearly the central bank is struggling with the issue of liquidity and that's why they are using the repo now to mobilize their effectiveness and to inject liquidity in the market as needed," said Magda Kandil, executive director at the Egyptian Center for Economic Studies in Cairo.
Kandil added that the central bank was "reaching the end of its options," and "the only way left for [the bank] is to continue with the repo tool and buy whatever government securities that banks might be holding."
The country's inflation has remained largely steady and a weak economy has kept any drastic monetary action in the interest rates at bay, economists' say. Egypt's urban consumer inflation rate, the most closely watched indicator of prices, fell to 8.3% in May while the cost of food and beverages, which is the biggest component of the consumer-price index, rose at a slower pace, 10.8% from a year earlier.
Instead deeper concerns over delays over the International Monetary Fund loan and a smooth political transition threaten to derail any chance of economic recovery.
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; +20111 4994453; Fhalime@gmail.com
(END) Dow Jones Newswires
17-06-12 0537GMT
