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Egypt deputy finance minister sees interest rate hike as temporary

Reuters , Saturday 8 Jul 2017
Finance ministry
File Photo: Cairo's headquarters of the Egyptian ministry of finance (Photo: Al-Ahram)
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Egypt's Deputy Finance Minister for Treasury, Mohamed Meait, said on Saturday he expected higher interest rates to be temporary measure to control inflation, which he saw declining early next year.

The central bank, faced with accelerating inflation, on Thursday raised its key interest rates by 200 basis points for the second policy meeting in a row, wrongfooting economists who had forecast no change.

"We expect the interest rate decision to be a temporary measure to target inflation," Meait told Reuters. "We expect inflation to fall in early 2018 and thus (can) begin cutting interest rates."

Egypt floated the pound in November, and since then the currency has roughly halved in value, sending inflation surging. Although the core inflation rate slipped in May, it remains almost 30 percent year-on-year.

Meait also said the two increases in base rates this year were not taken into account in the state budget for the 2017/18 fiscal year, which parliament passed last week.

The interest on current and future debt was calculated at 381 billion pounds, Meait said, who expected adjustments to that figure in light of the change in borrowing costs.

The budget has yet to be ratified by President Abdel Fattah El-Sisi yet.

The central bank raised interest by 300 basis points after the currency flotation, which helped Egypt clinch a three-year $12 billion International Monetary Fund lending programme tied to reforms such as tax hikes and subsidy cuts.

The IMF has said lowering inflation is key to keeping the reform programme on track and that raising key interest rates could be an appropriate tool for doing so.

The central bank said it aims to cut inflation to 13 percent by end-2018.

The government last week hiked fuel and electricity prices by up to 50 percent for the second time since November in another step to narrow its budget deficit. More rises are expected.

"The average interest rate on domestic borrowing rate is currently between 19 and 20 percent and this average may fall in the second half of 2018 to 18 percent," Meait said.

Interest on debt costs for 2016-2017 had exceeded the target "but cannot be announced at the moment," he added. 

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