January 27, 2011 / 7:22 PM / 8 years ago

UPDATE 2-Egypt cbank holds interest rates stable during protests

(Adds central bank statement, analyst comments)

CAIRO, Jan 27 (Reuters) - Egypt’s central bank kept its key overnight interest rates steady on Thursday as it struggles to foster growth without reigniting the high inflation that has fuelled unprecedented protests against the government.

An increase in rates could help slow consumer inflation that is running at an annual 10 percent, but could scare away investment that would help the government meet its growth target of 7 percent next year.

“The central bank is stuck between a rock and a hard place,” said John Sfakianakis, chief economist at Banque Saudi Fransi.

“They can keep rates as is and maintain vigilance, but vigilance doesn’t help much in this situation, which is that food inflation at 17 percent is creating huge disposable income problems.”

“So the other scenario would be to increase rates, but increasing rates would not do anything at a time when the country is up and is going against the regime.”

Police fought protesters in the Egyptian cities of Suez and Ismailia on Thursday, the third day of protests to try to oust President Hosni Mubarak. [ID:nLDE70Q009]

As in many countries in region, the protesters complain about surging prices, unemployment and the authorities’ reliance on heavy-handed security to keep dissenting voices quiet.

The central bank kept the overnight lending rate at 9.75 percent and the deposit rate at 8.25 percent, it said on its website, its 11th pause since it stopped lowering rates in September 2009.

It also left the discount rate unchanged at 8.5 percent.

The decision was in line with analyst forecasts in a poll taken before the protests broke out in Egypt on Tuesday.

All 13 economists forecast that the bank’s Monetary Policy Committee would keep rates steady.

In a statement that accompanied the decision, the central bank repeated its view that underlying inflation remain contained, saying some of the worst price increases occurred in early 2010.

“While the supply shortages related to fruits and vegetables in addition to red meat and poultry have clearly eased during the past three months, their price increases since the beginning of 2010 continue to explain more than 40 percent of annual headline inflation,” the bank said.

Inflation continued to creep higher in December, with urban consumer price inflation quickening to a year-on-year 10.3 percent in December from 10.2 percent in November.

Although urban inflation fell from a peak of 23.6 percent in August 2008, it reignited late last year, climbing as high as 13.6 percent in January 2010.

More worrisome, year-on-year core inflation, which strips out subsidised goods and volatile items including fruit and vegetables, rose to 9.65 percent from a revised 8.93 percent in November. [ID:nLDE70904M]

Even before the protests reached Egypt, analysts in the poll had said political concerns after the ousting of Tunisia’s president earlier this month made it less likely that the central bank would respond to the higher inflation by increasing interest rates.

The central bank slashed rates last year in a cycle of cuts aimed at spurring growth in the wake of the global economic crisis. It has held them steady since, and analysts do not expect it to begin raising them until later this year.

The government has forecast that the economy will grow by 7 percent in the fiscal year that begins in July 2011, up from 5.1 percent in the year ended June 30, 2010 and an expected 6 percent this year. [ID:nLDE6BC0HT]

The government believes it needs a minimum 6 percent growth to absorb new entrants to the labour force. (Reporting by Patrick Werr; Editing by Ruth Pitchford; Editing by Andrew Hay)

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below