Egyptian inflation slowed in the year to February, supporting a hold in central bank interest rates on Thursday to support an economy reeling from the impact of a revolt that ousted President Hosni Mubarak. Urban consumer inflation eased to 10.7 percent in the 12 months to February from 10.8 percent in January, Egypt's state statistics agency CAPMAS reported on its website on Thursday. Several economists had expected an increase in the rate--the most closely watched indicator of prices--as a result of a weaker pound and imported inflation, adding to record high food prices. Anti-government protests fuelled by soaring prices, unemployment and demands for democratic reforms brought much of Egypt's economy to a standstill for nearly three weeks until Mubarak resigned on 11 February. "I'm surprised by the reading. Although growth has slowed sharply, I expected the disruption that came with the political turmoil to push prices upward," said Simon Williams, chief economist at HSBC Middle East. He was one of five economists polled by Reuters who expected the central bank to keep its benchmark interest rates steady after its meeting on Thursday afternoon. Urban food and beverages price rises, however, which account for 44 percent of the weighting of the basket Egypt uses to measure inflation, were still at 18.2 percent in the year to February, down from 18.9 percent in January. Alia Mamdouh, economist at CI Capital, expects the bank to raise its deposit rate by a quarter point in response to those price pressures but keep its lending rate on hold this year to support the battered economy. Egypt's economy has been hurt by a collapse in tourism and foreign investment since protests erupted on 25 January. The finance minister estimated in February that the political turmoil would reduce economic growth to 4.3 percent in the financial year to end in June from the government's previous forecast of 6 percent. The economy grew by 5.1 percent in the fiscal year that ended 30 June 2010. The central bank on 27 January left its benchmark overnight deposit rate at 8.25 percent and the overnight lending rate at 9.75 percent, its 11th pause since it stopped lowering rates in September 2009. It said inflationary pressures remained "contained." Analysts say the bank aims to foster growth without reigniting the high inflation that has fuelled unprecedented protests against the government. Egypt relies on imports for at least half of domestic consumption and the revolution came as global food prices tracked by a U.N. agency hit their highest on record.
