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Egypt May Keep Interest Rates on Hold as Inflation Slows

June 14 (Bloomberg) -- Egypt’s central bank will probably keep its benchmark interest rate unchanged as pressure on the currency offsets concerns about the economy’s slow growth.

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.

The inflation rate is low and the economy is weak, yet “the risk of a currency crisis is still high,” said Said Hirsh, an economist at Capital Economics in London. “We don’t think that the central bank will cut rates yet.”

Annual inflation in urban areas, the gauge the central bank monitors, slowed to 8.3 percent in May from 8.8 percent in April. Economic growth has been the weakest in decades after the uprising against Hosni Mubarak last year deterred tourists and investors. The election of a successor is due to be completed in a two-day runoff vote on June 16 and 17.

The pound has only fallen about 4 percent against the dollar since the start of last year, less than most emerging-market currencies.

The central bank raised the key interest rate by one percentage point in November, citing inflationary pressures, though some economists said it was intended to prevent a run on the pound.

Runoff Vote

Egypt requested a $3.2 billion-loan from the IMF in January. Talks have dragged on amid wrangling between the interim government and the Islamist-dominated parliament, and were put on hold during the presidential vote. 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 second-round election pits the Muslim Brotherhood’s Mohamed Mursi and Ahmed Shafik, who served as premier in the last weeks of Mubarak’s rule. The contest between an Islamist and a figure from the old regime has already sparked protests and a legal challenge to Shafik’s candidacy.

The election won’t “end the uncertainty,” Agha said in an e-mailed response to questions. Investors are concerned about public reactions to the vote results, and what policies will be pursued by a new administration, he said.

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

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

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