CAIRO - In what analysts describe as a necessary move to bring the economy back on track, the Central Bank of Egypt (CBE) has kept its overnight interest rates unchanged. The CBE maintained deposit and lending rates at 9.25 and 10.25 per cent respectively. The double-headed move aims at keeping the cost of government debt at reasonable levels and attracting more investments into a drained economy, one analyst said. "The overnight rates are high enough to combat foreign exchange fluctuations. Despite a rise in the Euro here, the US dollar has been around LE6.05 for several months. The CBE's monetary policy has so far been balanced," Suheir Wagih, an economist at the Cairo-based Future Investment Consultants, told The Egyptian Gazette. The Euro has topped LE8 on the local market, while the greenback has remained at an average LE6.04. A decline in tourism revenues over the past year incurred a slight rise in foreign exchange rates. Tourism revenues stood at $8.8 billion in 2011, down from $12.5 billion in 2010, according to official reports. As the Government needs liquidity to bridge the gap in its budget deficit estimated at LE144 billion ($24 billion) in the fiscal year 2011/2012, it will issue more treasury bills and bonds, according to Wagih. Egypt's fiscal year begins on July 1. "The Finance Ministry will issue treasury bills and government bonds to balance the gap in the State budget. The Government has an obligation to repay these debts at maturity dates," she said, adding that the failure to receive a $3.2 billion loan from the International Monetary Fund (IMF) would increase Egypt's debt risks. "Keeping the rates stable will also attract more cash into local banks and increase the deposits. The move will boost the investment climate; local banks will have more funds to offer to investors," Wagih explained. "The raising of interest rates could increase bank deposits, but it would not guarantee an increase in investments. The bank loan to deposit ratio stands at around 50 per cent in Egypt. In other developing countries, the ratio averages 70-80 per cent," Wagih said. Deposits in Egyptian banks stand currently at around LE800 billion, according to CBE figures. But inflationary pressures remain the country's most serious challenge, analysts say. "As far as interest rates are concerned it is the other side of the coin. In April the inflation rates will start to rise. Prices usually shoot up in the summer due to increased consumption," Wagih argued. Urban inflation rose to 9.9 per cent in February from 9.2 per cent in January, according to the State-run Central Agency for Public Mobilisation and Statistics (CAPMAS). "Food prices may rise between 30 and 50 per cent in the summer due to growing demand, higher foreign exchange rates and increasing world prices," she said, forecasting an inflation rate above 15 per cent by July. Inflation reached a record high of 23.6 per cent in August 2008.
