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Egypt Holds Key Rates as Growth Picks Up Speed

The Monetary Policy Committee left the overnight deposit rate at 8.25 per cent and the overnight lending rate at 9.75 per cent, the Cairo-based central bank said in an e-mailed statement. All five economists surveyed by Bloomberg forecast that the bank would keep rates unchanged.

The central bank in November ended a sequence of six rate cuts. As in last month’s statement, the bank today cited “encouraging signs” that Egypt’s monetary and fiscal measures have helped revive the economy. It reiterated that it will not hesitate to adjust rates “to ensure price stability in the medium term.”

Economic growth accelerated to 4.9 per cent in the third quarter, and Investment Minister Mahmoud Mohieldin last week forecast an expansion of as much as 5.5 per cent in the fiscal year through June.

“There is no evidence of significant non-food inflation, and economic growth is picking up,” Reham El-Desoki, senior economist at Egyptian investment bank Beltone Financial, said in a telephone interview in Cairo.

“Higher growth could create inflationary pressures in 2010, prompting the central bank to tighten monetary policy.” Economic growth is still below the average seven per cent achieved in the three fiscal years through June 2008 after the global financial crisis hurt revenue from tourism, the Suez Canal and foreign direct investment.

Core Inflation

Headline urban inflation was little changed in November at 13.2 per cent from 13.3 per cent in the previous month. Inflation peaked at 23.6 per cent in August 2008. Core inflation, which excludes the costs of fruits and vegetables as well as regulated prices, was 6.6 per cent last month compared with 6.5 percent in October.

“It is important to underscore that the December inflation outturn is expected to reflect unfavorable base effects from last year, which has already been factored into the Central Bank of Egypt’s assessment of the monetary policy stance,” the central bank said in the statement.

“The current level of policy rate is appropriate and supportive of the economic recovery while consistent with maintaining core inflation within the Central Bank of Egypt’s comfort zone in the medium-term,” the bank said.