Bloomberg News

Egypt May Keep Interest Rate Unchanged as Currency Weakens

July 25, 2012

Egypt’s central bank may keep its benchmark interest rate unchanged for a fifth consecutive time, as borrowing costs remain near-record highs and the currency near the lowest in more than seven years.

The Monetary Policy Committee, headed by Governor Farouk al-Okdah, will hold the overnight deposit rate at 9.25 percent when it meets tomorrow, according to all seven economists surveyed by Bloomberg News. The bank usually meets at 3 p.m., with the announcement coming about two hours later. The last meeting during the holiday of Ramadan yielded a decision earlier than usual.

“Although inflationary pressures have eased and the economy is weak, it is unlikely to cut its benchmark rate given pressures on the currency,” said Said Hirsh, a Middle East economist with Capital Economics. “Instead, it will carry on with monetary loosening in other ways, such as repo facilities.”

Egypt has staved-off depreciation of its currency with the pound, subject to a managed float, losing 4 percent since the start of last year’s revolt. The country started a repurchase facility for government securities in March to ease funding pressure on local banks that became the biggest buyers of its debt as foreign investors withdrew. Sales of seven-day repurchase agreements, or repos, more than tripled last quarter from a year earlier, allowing holders of the debt to sell it back to access funds temporarily at 9.75 percent.

Bond Yields

Economic growth is expected to slow this year to less than 2 percent this year, from 2.5 percent in 2011, according to central bank Governor Farouk al-Okdah. Annual inflation in urban areas, the gauge monitored by the central bank, slowed to 7.3 percent in June from 8.3 percent a month earlier.

“Growth conditions are still too weak for a rate hike, while a cut would further exacerbate the differential between government borrowing costs and the base rate,” Elizabeth Martins, senior economist with HSBC in Dubai, said in response to e-mailed questions.

The yield on the government’s 5.75 percent dollar bonds due April 2020 has surged 95 basis points to 6.61 percent since the start of last year’s revolt that ousted Hosni Mubarak, according to data compiled by Bloomberg.

The stalled growth comes amid a political power struggle between President Mohamed Mursi and the country’s generals.

New Prime Minister

The military council, which took power after the ouster of Hosni Mubarak last year, stripped Mursi’s office of some of its powers while giving itself broad, albeit temporary legislative authority.

Mursi, who is from the ranks of the Muslim Brotherhood, yesterday appointed the country’s little-known irrigation minister Hisham Qandil as prime minister, a move that did little to reassure investors.

“The longer the period of power struggle with limited or no FC inflows, the more likely the move toward a tighter monetary policy and import controls and the higher the probability of a disorderly EGP depreciation, if all tools are exhausted,” Monsef Morsy, an analyst with Pharos Holding, said in a July 24 report.

To contact the reporter on this story: Tarek El-Tablawy in Cairo at

To contact the editor responsible for this story: Andrew J. Barden at

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