#Egypt’s Central Bank keeps key interest rate unchanged

Egypt’s central bank kept its benchmark interest rate unchanged today after inflation held steady and foreign reserves increased.

The overnight deposit rate was kept at 9.75 percent and the overnight lending rate at 10.75 percent. The decision matched forecasts from five of six economists in a Bloomberg survey, while one analyst had called for an increase.

Net international reserves rose to $16 billion in May from $14.4 billion a month earlier, the highest level since January 2012, after Egypt received $3 billion from Qatar. Reserves have tumbled more than half since the end of 2010, as the uprising that ousted Hosni Mubarak and the subsequent turmoil battered the economy. The annual urban inflation rate in May rose to 8.2 percent from 8.1 percent in April.

The bank’s decision came “as headline inflation largely stabilized in May, partially supported by an equivalent stabilization of the” Egyptian pound, Mohamed Abu Basha, an economist at investment bank EFG Hermes Holding SAE in Cairo, said in response to e-mailed questions.

The pound has lost 11.6 percent since the central bank started limiting access to dollars in December, according to data compiled by Bloomberg.

“We expect the local currency to remain pressured given the lack of foreign inflows coupled with the current political instability,”Alia Mamdouh, an economist with Cairo-based CI Capital, said. Inflationary pressure suggests “a tightening monetary policy in the medium term,” she said.

Rival Rallies

The central bank’s decision came ahead of rallies planned for June 30 by opponents of President Mohamed Mursi, who are marking his first year in office by calling for elections to replace him. Mursi’s supporters are planning counter demonstrations tomorrow.

Political polarization has marred Egypt’s transition and stifled efforts to boost the economy and to conclude a $4.8 billion loan accord with the International Monetary Fund.

Mursi’s critics accuse him of advancing the interests of the Muslim Brotherhood from which he hails instead of focusing on fighting unemployment, corruption and poverty, some of the complaints that spurred the 2011 revolt. His supporters say rampant demonstrations undermine his stabilization efforts.

“Investors are now somewhat acclimatized to the volatility in domestic politics,” Raza Agha, chief Middle East and Africa economist at VTB Capital in London, said in response to e-mailed questions. “The size of the protests will be a key measure of how popular or unpopular the presidency has become since his election last year.


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