Egypt Raises Interest Rates for First Time Since 2011

Egypt’s central bank raised interest rates for the first time since 2011, after the pound’s decline fueled a jump in inflation.

The central bank raised the benchmark deposit rate by half a percentage point to 9.75 percent, and the overnight lending rate by the same amount to 10.75 percent, according to the Cairo-based bank’s website. Three analysts surveyed by Bloomberg had forecast an increase and four expected no change.

The bank is raising rates even as Egypt’s economy struggles to recover after the 2011 uprising against Hosni Mubarak, with growth at the slowest pace in two decades as political polarization and sporadic violence undermine the transition. It’s acting to counter inflation, which almost doubled in two months after the central bank started allowing the pound to weaken in December.

“The hike is due to rising inflationary pressures” as well as “some concerns about the weakening Egyptian pound,” Mohamed Abu Basha, an economist at investment bank EFG-Hermes Holding SAE in Cairo who forecast an increase, said by phone after the decision.

The pound has dropped almost 9 percent since the bank started auctioning dollars on Dec. 30.

Political Unrest

“While the slowdown in economic growth has been limiting upside risks to the inflation outlook, there is a possible buildup of upward pressures on inflation,” the central bank statement said. “Despite the downside risks to the GDP outlook,” the monetary policy committee “judges that disanchored inflation expectations are more detrimental to the economy over the medium term.”

Egypt’s political tensions and worsening economic outlook were emphasized by Moody’s Investors Service, which cut its rating on the country today for the sixth time since the 2011 revolt.

Efforts to negotiate a $4.8 billion loan from the International Monetary Fund have repeatedly stalled amid the unrest. Egypt aims to have an agreement in place by July when the next financial year starts, the government said yesterday.

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