Bloomberg News

Egypt May Maintain Key Interest Rate to Help Growth After Revolt

October 12, 2011

Oct. 13 (Bloomberg) -- Egypt’s central bank will probably keep its benchmark interest rate at the lowest level in almost five years in a bid to bolster economic growth after the popular uprising against Hosni Mubarak.

The Monetary Policy Committee, led by Governor Farouk El- Okdah, will keep the overnight deposit rate at 8.25 percent, the lowest since November 2006, when it meets today, according to all five economists surveyed by Bloomberg News. The bank usually meets at 3 p.m. and announces the decision two hours later. It hasn’t changed the rate since September 2009.

The Egyptian economy is struggling to recover from the aftermath of this year’s turmoil. Gross domestic product contracted 4.2 percent in the first quarter and rose 0.4 percent in the following three months, according to official data. The government’s borrowing costs have soared to the highest level since 2008 after foreign investors slashed their holdings of treasury bills, leaving domestic banks to buy the debt.

“On the economic side, there’s a need to keep attracting capital flows into the country,” said Marios Maratheftis, Dubai-based head of research for the Middle East at Standard Chartered Bank. “Inflation is to some extent a concern but at the same time growth needs to be maintained and also increased so the best way forward is to keep rates unchanged.”

Economic Slump

Since the uprising, tourists have fled, foreign investors have dumped Treasury bills and factory output has been hit by protests and strikes. The benchmark EGX 30 stock index is down 43 percent this year. Yields on 1-year treasury bills were at 13.72 percent in an auction this week after surging 90 basis points in the third quarter. Previous governments have said they need growth of about 7 percent to create enough jobs for a growing working-age population.

Inflation in urban parts of Egypt slowed to 8.2 percent from 8.5 percent in May as food prices, one of the causes of the unrest that toppled Mubarak, rose at a slower pace.

Sectarian tensions have increased amid fears by many Christians that Islamists will have more influence in post- Mubarak Egypt, where parliamentary elections are scheduled to start on Nov. 28. Fighting erupted on Oct. 9 while Christians were protesting an attack on a church in southern Egypt.

The demonstrations started peacefully and then turned violent when protesters were attacked by men in civilian clothing who pelted them with stones, witnesses said. They later clashed with security forces and some were killed and injured by gunfire. Others were run over by an armored vehicle, they said.

--With assistance from Ahmed Namatalla in Cairo. Editors: Digby Lidstone, Ben Holland.

To contact the reporters on this story: Mariam Fam in Cairo at mfam1@bloomberg.net;

To contact the editor responsible for this story: Andrew J. Barden in Dubai at barden@bloomberg.net.


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