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CBE keeps rates steady, opens door to cut
Published in Daily News Egypt on 07 - 11 - 2008

CAIROL Egypt s central bank ended a nine-month cycle of interest rate rises on Friday, saying it would leave rates on hold and signaling it could ease monetary policy in the future to support growth.
The central bank of the most populous Arab country left the overnight deposit rate at 11.5 percent, the overnight lending rate at 13.5 percent and the discount rate at 11.5 percent, in line with analysts expectations.
Given the monetary tightening since February, the monetary policy committee believes that the current level of the policy rate is supportive of disinflation, the bank said.
The committee will consider a measured rate cut when needed, so as to prevent economic growth from falling below its potential, it added.
The bank said a slowdown in global demand could threaten domestic economic growth.
Ongoing uncertainties surrounding the projected slowdown of external demand pose downside risks to domestic economic growth, it said.
Egypt s government has said it was maintaining its growth target at 6 to 7 percent in the current fiscal year, from 7.2 percent in the 2007/08 year, and has said revenue from exports, tourism, and the Suez Canal could slow.
The central bank said lower global commodities prices and a possible slowing of domestic growth had reduced inflation risks.
Generally speaking, most of the upside risks to inflation, discussed in the previous monetary policy committee meeting, have eased, the bank said.
Smaller-than-expected increases in food prices helped the urban inflation rate fall to 21.5 percent in September from a 16-year-high of 23.6 percent in August. Rising prices had led to street protests this year.
Eight out of 13 economists and bankers polled by Reuters on Thursday said the central bank s monetary policy committee may wait for evidence the fall in prices has started to filter through to consumers before slashing overnight rates.
The central bank has nudged overnight rates up six times this year by a cumulative 275 basis points.
Central Bank Governor Farouk 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.
International food prices hit nine-month lows in September and have since tumbled further. Egypt is among the world s top importers of wheat.
The bank may wait to see the impact of the global slowdown on domestic growth and to see a sharper drop in inflation before cutting rates, said Reham El-Desoki, senior economist at Egyptian investment bank Beltone Financial.
We expect the monetary policy committee could be inclined to cut interest rates at its next meeting or in early 2009, she said.
The central bank also said Egyptian banks were well-capitalized and had little exposure to failed global financial institutions and had generally avoided investing in structured credit or derivative products.


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