Bloomberg News

Egypt May Keep Key Interest Rate Unchanged as Economy Struggles

May 02, 2012

Egypt’s central bank will probably keep its benchmark interest rate unchanged as the economy struggles and talks for an International Monetary Fund loan drag on.

The Monetary Policy Committee, led by Governor Farouk El- Okdah, will keep the overnight deposit rate at 9.25 percent when it meets today, according to all seven economists surveyed by Bloomberg News. The bank usually meets at 3 p.m. and announces the decision two hours later.

“Growth is still weak and inflation is still high,” Liz Martins, Dubai-based senior economist at HSBC Middle East, said in response to e-mailed questions. “The central bank will be wary of the consequences of a move in either direction.”

The bank raised the rate by a percentage point in November, citing inflationary pressures, though some economists said it was intended to prevent a run on the Egyptian pound. The country’s foreign currency reserves have plunged nearly 60 percent since the uprising against Hosni Mubarak last year and domestic borrowing costs are close to a record high. The economy is struggling to recover from a drop in investment and tourism.

Growth slowed to 0.4 percent in the final quarter of 2011 from 5.6 percent a year earlier as the economy contracted for the first time in decades. The annual inflation rate in urban parts of Egypt, the gauge the central bank monitors, fell in March to 9 percent from 9.2 percent in February.

Egypt requested a $3.2 billion-loan from the IMF in January but talks have yet to conclude amid wrangling between the interim government and the Islamist-dominated parliament.

Loan Support

The IMF said yesterday more work needs to be done before signing a loan agreement with Egypt, raising the possibility that the funds won’t be delivered as soon as the Egyptian government had anticipated. The IMF demands broad political support for a loan-related economic plan to ensure it is implemented beyond the transitional period.

Officials with the Muslim Brotherhood’s Freedom and Justice Party, which makes up the largest bloc in parliament, say they don’t want money from a possible deal with the IMF disbursed to the current interim government. The ruling military council says it will hand power to civilians by the end of June.

Economists such as Raza Agha of the Royal Bank of Scotland Group Plc say IMF support is necessary to rebuild investor confidence in Egypt after the revolt.

The rate decision will come about three weeks before the first presidential elections since Mubarak’s ouster and follow deadly clashes in Cairo this week between protesters and unknown assailants that added to the unrest surrounding the country’s transition.

Investors would like to see “the return of normalcy” once the transition is complete, “and that a new elected government is not held hostage to continued street protests,” said Agha. “This will very difficult as the expectations associated with the new government will be very high.”

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

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


Monsanto vs. GMO Haters
LIMITED-TIME OFFER SUBSCRIBE NOW

(enter your email)
(enter up to 5 email addresses, separated by commas)

Max 250 characters

 
blog comments powered by Disqus