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Egypt’s central bank kept its benchmark interest rate unchanged yesterday after inflation held steady and foreign reserves increased. |
The overnight deposit rate was kept at 9.75% and the overnight lending rate at 10.75%.
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 $16bn in May from $14.4bn a month earlier, the highest level since January 2012, after Egypt received $3bn 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% from 8.1% in April.
The bank’s decision came “as headline inflation largely stabilised in May, partially supported by an equivalent stabilisation of the” Egyptian pound, Mohamed Abu Basha, an economist at investment bank EFG Hermes Holding in Cairo, said in response to e-mailed questions.
The pound has lost 11.6% 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.
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 today.
Political polarisation has marred Egypt’s transition and stifled efforts to boost the economy and to conclude a $4.8bn 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 stabilisation efforts.
Egypt’s current account deficit narrowed to $3.9bn in the first nine months of this financial year, from $7.1bn a year earlier, thanks to a drop in its trade deficit and a pick up in tourism revenues and remittances to the cash-strapped country. Its trade deficit shrank 2.7% to $23.8bn due to an increase in merchandise exports, the country’s central bank said in a statement posted on its website. Egypt’s financial year runs from July 1 to June 30.
Revenues from tourism meanwhile rose by $1bn to $8.1bn and workers’ remittances also increased by $1bn to $13.9bn.
Foreign direct investments also edged up with net inflows of $1.4bn, compared with $1.2bn in the year before period. “This was a result of the contraction in the net outflows of investments in the oil sector,” the central bank said.
Meantime, Egyptian pound inched down at a central bank foreign exchange auction yesterday but weakened much faster on the black market on jitters over mass anti-government demonstrations called for June 30.
The central bank said it sold $38.9mn to banks at the auction, with the cut-off price slightly weaker at 6.9938 pounds to the dollar compared to 6.9902 at Monday’s auction.
On the black market, one dealer in central Cairo quoted 7.65 pounds to buy dollars and 7.70 pounds to sell dollars, down from 7.55 and 7.60 pounds on Wednesday.