CAIRO: Price stability will be the Central Bank of Egypt's (CBE) main focus in the coming period, said CBE Governor Farouk El-Okdah. I am not saying that growth is not important. I said our overriding objective is price stability, Okdah told a news conference Wednesday, which some interpreted as an attempt to curb expectations of interest rate cuts. The CBE ended a nine-month cycle of interest rate rises on Nov. 6, saying it would leave rates on hold and signaling it could ease monetary policy in the future to support growth. Some analysts forecast that the central bank will cut rates by 300 to 400 basis points over the next 12 months to stimulate growth in Egypt in the face of the worst global financial crisis in 80 years. Earlier this week, President Hosni Mubarak said credit should be cheaper to help investors finance businesses and increase competitiveness of the economy, which led to speculations about loosening monetary policy. Real Egyptian gross domestic product growth is expected to ease to an average of 5.25 percent in the current 2008/09 fiscal year down from 7.2 percent the previous year, according to a recent Reuters poll. Cabinet leaders, however, said they expected growth to slightly slip to 6 percent. The CBE has nudged overnight rates up six times this year by a cumulative 275 basis points in a bid to combat inflation, which peaked to a 16-year-high of 23.6 percent in the year to August. It has since fallen back to 20.2 percent. The bank s overnight deposit rate currently stands at 11.5 percent, the overnight lending rate at 13.5 percent and the discount rate at 11.5 percent. El Okdah said last month monetary policy would act to support growth but has also said the bank had not seen domestic inflationary factors receding. He pointed out that the CBE would issue a long-awaited core inflation index in the first half of 2009 as part of measures to strengthen the bank s inflation-targeting tools, Reuters reported. He explained that the new core inflation index will calculate inflation after eliminating volatile factors such as food items. The CBE Governor also said on Wednesday that commotion from the international financial turmoil could hit the specific sectors of the Egyptian economy but not the banking sector. This is a global crisis, and Egypt is part of the world. We import/export goods and services, so there will be some effects on sectors such as exports, tourism, the Suez Canal revenues and foreign direct investments, he said. But the good news is that we don t have to intervene and help the banking system. We don t have to inject liquidity into it. The banking system is flooded with liquidity. The banking system is healthy and well capitalized, he added. El-Okdah s remarks came after signing a Memorandum of Understanding with Jean-Claude Trichet, president of the European Central Bank (ECB), which aims at intensifying cooperation between both institutions ahead of the start of the second technical assistance banking supervision program next January. The three year program seeks to gradually strengthen banking supervision in Egypt towards basic Basel II compliance, in line with the strategy devised by the CBE. The aim of the program is to support the [CBE] in drafting new rules, policies, and practices that will effectively create an appropriate Egyptian version of the internationally accepted banking supervision standard known as Basel II, said Trichet. In this process, we will also take account of the most recent European experiences from the financial market turmoil. The ?3 million program is financed by European Commission and will be implemented by the ECB in partnership with seven European central banks, namely Germany, Greece, France, Italy, Romania, Bulgaria and the Czech Republic.
