Thursday, Oct 13, 2011


 
  By Matt Bradley 
  Of DOW JONES NEWSWIRES

CAIRO (Dow Jones)--Egypt's Central Bank decided to keep its interest rates unchanged after its meeting Thursday afternoon as persistent economic instability has kept inflation rates at manageable levels.

The bank will keep its overnight deposit rate at 8.25% and its overnight lending rate at 9.75%. The discount rate was also left unchanged at 8.50%, the Central Bank announced.

The bank has kept the interest rate unchanged since September 2009, when they were set at their lowest level in nearly five years.

"This was largely expected," said Wael Ziada, the head of research at EFG-Hermes, a Cairo-based investment bank.

Inflation is at "a manageable level and if you compare it to last year, the overall inflation trend has been declining," said Mr. Ziada.

Inflation has remained largely under control in Egypt. The country's headline consumer price index rose by 1.43% in September compared to an increase of 1.1% in August.

The annual rate of inflation, meanwhile, declined to 8.21% in September from 8.49% in August, according to Egypt's Central Agency for Public Mobilization and Statistics.

The core inflation rate, which excludes volatile items such as fruits and vegetables, increased by 1.13% in September compared to 1.18% in August. The annual rate of core inflation increased to 7.95% in September compared to 6.98% in August.

But even when inflation was higher, the Central Bank has largely avoided increasing interest rates. Instead, it has focused on maintaining the price of the Egyptian pound through direct operations on the foreign exchange market to keep prices in check, Mr. Ziada said.

The decision came after the Central Bank's sixth interest rate meeting since former President Hosni Mubarak stepped down Feb. 11 following 18 days of street-level protests in Cairo and other Egyptian cities.

Despite the heavy economic toll of the revolution, Egyptian banks entered the political tumult with high levels of liquidity and slowing economic growth has kept inflation at bay, said Mr. Ziada.

Egypt's economy grew only 1.8% in the fiscal year that ended on June 30. The slowing economy has turned the bank's attention toward attracting investment, which has lagged since Egypt's revolution.

A gaping fiscal deficit, and the interim military leadership's refusal to rely on foreign financial institutions for low-interest loans, has prompted the ministry of finance to borrow heavily from Egyptian banks.

By Matt Bradley, Dow Jones Newswires; Matt.Bradley@dowjones.com

(END) Dow Jones Newswires

13-10-11 1718GMT