CAIRO: Egypt's central bank may raise borrowing costs further this week, economists said, offering a wide range of forecasts that reflect the tough task ratesetters face in trying to defend a weak local currency while not exacerbating an economic crisis. In a Reuters survey, seven of 12 economists forecast that Thursday's meeting would hold overnight rates unchanged at 9.75 percent for lending and 8.25 percent for deposits. The other five predicted increases ranging from 25 to 125 basis points. At the last monetary policy meeting on Nov. 24 the central bank — which has been eating up its foreign reserves trying to defend a local pound hit by street violence and political chaos — unexpectedly raised benchmark interest rates. Justifying the first hike in more than two years, policymakers cited inflation risks linked to supply bottlenecks and distribution channel distortions. Economists at the time said the bank had been forced to raise rates to ease pressure on the pound because of dwindling foreign appetite for Egyptian assets since the overthrow of the country's president last February. Since Egypt's uprising a year ago, increased government borrowing to finance a burgeoning budget deficit has steadily pushed up interest rates on treasury bills and bonds. The average yield on 364-day T-bills climbed to 15.87 percent this week, its highest in at least six years, from 10.44 percent in January 2011. Monette Doss of Prime Capital predicted the central bank would increase rates at Thursday's meeting by 1.25 percentage points to reflect higher rates in the economy. She said the central bank needed to attract liquidity to Egypt's banking sector to finance the government's expanding financing needs. "During the last week, the government tried to raise LE 11 billion in T-bills," she said. "However, it got only LE 2.6 billion at record high rates." But Said Hirsh of Capital Economics forecast the bank would keep rates on hold. "First, economic activity is still weak. Second, although inflation has picked up, it is still well below previous peaks. And third, they had a good start to the year in terms of capital flows. Hence the stock market rally, and the pound has stabilized," Hirsh said. Egypt's urban consumer price inflation quickened to 9.5 percent in the 12 months to December from 9.1 percent in November. Price growth had hit a four-year low of 7.1 percent in October. Core consumer price inflation, which strips out subsidized goods and volatile items including fruit and vegetables, remained largely unchanged at 7.07 percent in the year to December, the central bank said. At the November meeting, the bank raised its overnight deposit rate by 100 basis points to 9.25 percent and the overnight lending rate by 50 points to 10.25 percent.
