Bloomberg News

Egypt Keeps Benchmark Rate Unchanged as Currency Weakens

July 26, 2012

Egypt’s central bank kept its benchmark interest rate unchanged for a fifth consecutive time today, as pressure on the currency and borrowing costs at near- record highs overshadowed a slowing of inflation.

The Monetary Policy Committee, headed by Governor Farouk al-Okdah, held the overnight deposit rate at 9.25 percent, according to a statement on its website. All seven economists surveyed by Bloomberg forecast no change.

“Lowering interest rates at the moment could add pressures on the domestic currency, especially given that external pressures continue to exist,” Nada Farid, a Cairo-based economist with investment bank Beltone Financial, said in e- mailed comments.

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.

“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.

Yields Surge

Economic growth is expected to slow this year to less than 2 percent this year, from 2.5 percent in 2011, according to 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.

The yield on the government’s 5.75 percent dollar bonds due April 2020 has surged 84 basis points to 6.5 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.

The military council, which took power after the overthrow of Mubarak, 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, appointed the country’s little-known irrigation minister Hisham Qandil as prime minister on July 24, prompting criticism from some secular groups that Qandil fell short of the national-unity figure the president had pledged to name to steer the country forward.

“The persistent uncertainty on the political and macroeconomic outlook in the short to medium-term is still a drag on economic recovery,” Alia Moubayed, senior economist with Barclays Capital in London, said by e-mail.

To contact the reporter on this story: Tarek El-Tablawy in Cairo at teltablawy@bloomberg.net

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


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