Egypt Delays Rates Decision as Amer Urges Economic Reforms

  • Central bank: government coordination needed to achieve goals
  • Coordinating Council includes former Pimco CEO El-Erian

Egypt’s central bank delayed a scheduled rate decision for a week and Governor Tarek Amer held talks with top ministers after saying the bank’s objectives can’t be achieved without “full coordination” with the government.”

The Monetary Policy Committee said that should include “targets for fiscal consolidation, current account outturns and the implementation of urgent structural economic reforms,” according to a statement on the central bank’s website.

Amer was named governor last month as Egypt struggles with a foreign-exchange crunch threatening to derail its nascent economic recovery. His appointment fueled speculation that the central bank may abandon the capital controls put in place by his predecessor and devalue the pound to counter the dollar squeeze.

The governor met Prime Minister Sherif Ismail and other officials late on Thursday for the first session of the so-called Coordinating Council, which also includes Mohamed El-Erian, the former chief executive office of Pacific Investment Management Co., who holds an Egyptian passport. The body was formed in 2005 to coordinate monetary policy with the government but didn’t meet regularly and had a largely consultative role, according to former central bank Governor Ismail Hassan.

Actions and Deadlines

“This committee is now different that what it was before. It has a vision to set a comprehensive policy between the government and the central bank to solve the urgent problems facing the economy,” Abla Abdel Latif, an economics professor and member of the council, said in a phone interview. The council decided to form a “sub-committee to draft very specific actions with deadlines,” she said, declining to elaborate. The council will meet again in three weeks, she said.

The central bank is independent under Egyptian law.

“It seems that the central bank is seeking the commitment of the government to cut spending so that raising the interest rate, wouldn’t have a ruinous effect on the budget deficit through higher treasury yields," said Ziad Waleed, economist at Cairo-based investment bank Beltone Financial.

State Banks

The two largest state-owned lenders raised interest rates on local deposits in the past month to boost the pound’s appeal, and the government began to provide cheap food to contain inflation. Some of the measures were seen as precursors to an impending currency devaluation.

Egypt’s currency crisis caused business activity to contract the most in more than two years in November, according to the Emirates NBD Purchasing Managers Index. Officials from Saudi Arabia visited Cairo this week to discuss a fresh aid package that includes injecting investments as well as possible purchase of local government debt.

The last change to the benchmark was a half percentage-point cut in January, when the central bank cited a weaker inflation outlook following the plunge in global energy prices.

Three of five economists surveyed by Bloomberg, including at Capital Economics and EFG-Hermes, had expected the benchmark to stay unchanged at 8.75 percent. Inflation accelerated to a five-month high in November to 11.1 percent.

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