Egypt’s central bank kept its benchmark interest rates unchanged on Thursday, in a move that will help the government support the local currency even as inflation hovers at a six-year low.
The bank’s Monetary Policy Committee (MPC) left its key lending rate steady at 10.25 percent and the deposit rate at 9.25 percent after its regular meeting, it said on its website.
Explaining its decision, the MPC pointed to inflationary risk from rising global food prices, risks surrounding a global economic recovery and persistent weak investment in Egypt.
“Given the balance of risks surrounding the inflation and GDP outlooks and the uncertainty at this juncture, the MPC judges that the current key CBE rates are appropriate,” it said in a statement issued after its meeting.
Eight economists in a Reuters survey had all forecast the committee would keep the overnight rate on hold. The bank also left its discount rate unchanged at 9.5 percent and its seven-day repurchase agreement (repo) rate at 9.75 percent.
Price growth has slowed sharply as Egypt’s economy slowly recovers from the Arab Spring uprising last year that sent investors rushing for the exits and put tourism into a tailspin.
But while that fall in inflation might have given the bank an excuse to cut rates, such a move could have undermined the Egyptian pound, which the government is trying to stabilize after a slow slide this year.
The central bank has avoided a sharp devaluation partly by spending its foreign reserves, which are now less than half their level before the January 2011 uprising.
“Concerns over the fragile external funding position continue to outweigh the need to stimulate an ailing economy,” Said Hirsh of Capital Economics said after the rate decision.
A new government led by Mohamed Morsi, who was elected in June, has been trying to draw investors back and is in talks for a $4.8 billion loan from the International Monetary Fund. A meeting to discuss the loan is due at the end of October.
Hirsh said an agreement with the IMF would boost investor confidence, helping private capital inflows return which could then pave the way for rate cuts.
Average yields fell at a sale of Egyptian treasury bills on Thursday, with one trader saying some investors had priced in a rate cut by the central bank.
Yields have fallen across several maturities at auctions of Egyptian government debt this week, even though the amount of debt issued totaled 12 billion pounds, far greater than the 3 billion pounds of maturing bills.
Reuters
