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CBE seen keeping rates on hold
Released on - Thursday,05 November , 2009 -13:15 12
CAIRO- Egypt's central bank, with an eye to keeping inflation in check, is expected to keep its key interest rates on hold this week, marking the first pause since it began cutting rates in February.
Seven out of nine economists polled by Reuters expected the bank's Monetary Policy Committee to keep rates unchanged when it meets on Thursday, while two forecast a 25 basis point cut.
Economists said the monetary authority was more likely concerned with inflation rather than growth, which has been showing signs of picking up.
"It's very hard to justify rate cuts when headline inflation is going up, especially for Egypt, where when inflation goes up, it goes up very fast," said Turker Hamzaoglu, an economist with BoA Merrill Lynch.
At its last meeting on Sept. 17, the bank cut rates by 25 basis points, saying it believed underlying inflation would remain within its "comfort zone".
Figures released since that meeting, however, show urban prices rose 1.9 percent month-on-month in September, up from 1.5 percent in August, its second biggest rise in 12 months. Year-on-year, September urban prices rose 10.8 percent.
GDP, on the other hand, grew by an annualised 4.9 percent in the first quarter of the financial year that began on July 1, cabinet spokesman Magdy Rady said on Wednesday, up from 4.7 percent in the 2008-09 financial year.
"Growth is picking up. It's not like the third quarter of last year. It's picking up even though its very slow," said Hamzaoglu.
"This is a creditless growth anyway. So even when the central bank cuts rates, its not going to help private sector credit growth, because the private sector is crowded out. The government is holding all the available resources in the banking system," he added.
The central bank has cut interest rates six times this year, with the deposit rate declining to 8.75 percent from 11.5 percent in February and the lending rate percent falling to 9.75 percent from 11.5 percent.
A new core index the central bank began publishing last week climbed 1.0 percent month-on-month in September, also the second highest increase in the last year.
The bank has used but not published the index, which strips out subsidised goods and volatile items, since 2006 to guide its interest rate policy. Analysts said publishing the index would provide some guidance on the bank's interest rate policy.
Rania al-Mashat, head of the monetary policy division at the central bank, said launching the index did not mean the bank would ignore growth as it sought to control inflation.
Source: Reuters