Thursday, 06 September 2012 16:58
CAIRO: Egypt's central bank is expected to keep its overnight interest rates on hold at a monetary policy meeting later on Thursday despite continued slow growth and declining inflation as it pursues continuity under a new government.
All 10 economists in a Reuters survey forecast that Thursday's meeting would conclude with overnight rates unchanged at 10.25 percent for lending and 9.25 percent for deposits.
"Inflation is lower, but the uncertainty factors cited in the decision after the last meeting still hold to a large degree," said Giyas Gokkent, an economist at the National Bank of Abu Dhabi (NBAD).
Egypt's urban consumer inflation eased to 6.4 percent in July, its lowest in six years, driven by a smaller increase in food prices. Core inflation, which strips out more volatile items and is used by the central bank to help set interest rate policy, slowed to 6.34 percent from 7.04 percent in June.
Egypt's finance ministry estimates the economy grew by only 2 percent in the year to end-June, as it struggled to recover from the turmoil of a popular uprising, and projects growth of 4 to 4.5 percent in 2012/13.
State finances are under strain, partly because of the weakening in growth and higher social spending since the uprising. Egypt has requested a $4.8 billion loan from the International Monetary Fund and hopes for a deal by the end of this year.
Two measures the government may have to take are reducing energy subsidies and allowing the Egyptian pound to depreciate , both of which would feed higher prices. The currency hit its weakest level in more than seven and a half years, of above 6 to the US dollar, earlier this week.
"Unfortunately, Egyptian economic adjustment (fiscal and external balances) that is necessary is also likely to have a one-off inflationary impact when adjustment comes," Gokkent said.
The central bank has kept its benchmark overnight deposit and lending rates steady since November, when it unexpectedly raised rates for the first time in more than two years.
At its last meeting on July 26, it said there was a risk that growth rates could slow further because of Egypt's political transformation, weak investment and the challenges facing the euro zone.
Copyright Reuters, 2012