Egypt Likely to Maintain Benchmark Rate on Currency Concern
Egypt’s central bank is likely to maintain its benchmark interest rate steady at its highest in over three years due to pressure on the local currency.
The Central Bank’s Monetary Policy Committee, headed by Governor Farouk al-Okdah, meets later today to discuss the deposit rate, currently at 9.25 percent, days before an International Monetary Fund delegation is due to arrive in Egypt to consider the country’s $4.8 billion loan request.
The bank has kept the deposit and lending rates unchanged since November, as pressure on the Egyptian pound grew during the economic downturn that followed last year’s ouster of former President Hosni Mubarak. Foreign reserves have dropped by almost 58 percent, to $15 billion, and the budget deficit widened last year to 11 percent. The currency, subject to a managed float, has weakened by 4.2 percent since the uprising.
Interest rates are likely to remain unchanged “given the need to support the local currency, even with the easing of inflationary pressures,” said CI Capital’s Alia Mamdouh, one of five economists surveyed by Bloomberg who forecast the rate to remain unchanged.
Political insecurity remains, with a constitution yet to be finalized and rifts deepening between secular parties and Islamists backing President Mohamed Mursi which have weighed on efforts to revive the economy.
Economic growth in the country of 82 million fell to a 19-year low of 1.8 percent last year, a figure that will barely recover to 2 percent this year, according to the median estimate of 13 analysts compiled by Bloomberg.
Based on current reserves, “the government still has room to further defend” the pound until the end of the year, Pharos Holding analysts Monsef Morsy and Mona El Shazly wrote in an Oct. 14 note.
Egyptian officials say they hope to get the IMF to sign off on the government’s economic program during a visit by the fund to Cairo later this month. The government is looking at subsidy changes as part of an effort to cut costs and narrow a deficit that Standard Chartered Bank said would likely miss its target and be at least 10 percent of gross domestic product.
The Arab world’s most populous nation has been forced to rely on domestic sources of credit and aid from neighoring states as foreign investors fled after the mass uprising and tourism revenues declined. The most recent Central Bank data shows that foreign investments in Egyptian treasury bills in July were 760 million pounds, or 1.2 percent of their December 2010 level of 59.3 billion pounds.
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