Egypt leaves benchmark rate unchanged at 9.25pct

Egypt’s central bank left its key interest rate unchanged after the government requested a $3.2 billion loan from the International Monetary Fund and parliamentary elections eased concerns over political stability.

The Monetary Policy Committee left the overnight deposit rate at 9.25 per cent and the overnight lending rate at 10.25 per cent, the central bank said on its website. Three of five economists surveyed by Bloomberg anticipated the move, while two forecast an increase.

“Interbank rates and government borrowing costs continue to rise, but the decline in the currency looks gradual and measured, and pressures may ease somewhat following the completion of the elections and in the event that external financing starts to materialize,” Liz Martins, Dubai-based senior economist at HSBC Middle East, said in response to e- mailed questions before the announcement.

The bank raised rates in November for the first time since 2008, citing inflationary pressures. The annual inflation rate in urban parts of Egypt, the gauge that the central bank monitors, rose to 9.5 per cent in December from 9.1 per cent.

Some economists said the rate increase was intended to stem flight from the Egyptian pound, which retreated 3.8 per cent in 2011, even as the central bank used up half of its foreign currency reserves. The bank says it guards the stability of currency markets without targeting a level for the pound.

Egypt has formally requested a $3.2bn loan from the IMF with an agreement expected “within weeks,” the minister for planning and international cooperation, Faiza Aboulnaga, said on January 16. The central bank’s reserves dropped to $18.1bn in December. Government borrowing costs for one-year debt denominated in pounds have climbed close to 16 per cent.

Egypt’s economy is expanding at the slowest pace for at least a decade, as political instability persists after the uprising against Hosni Mubarak a year ago. Growth dropped to 0.2 per cent in the three months through September. Tourist arrivals fell 33 per cent last year.

The newly elected parliament, dominated by Islamist parties, convened for the first time on January 23 after seven weeks of largely peaceful voting. Egypt’s benchmark stock index, the worst performer in emerging markets last year, jumped 28 per cent in January, the most for seven years.