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Egypt's central bank mulls further rise in interest rates

Experts predict the bank might implement the second rate hike in three months on Thursday in a bid to support the pound

Ahram Online , Thursday 2 Feb 2012
Interest rate
Raising interest rates is another move to support the flailing Egyptian pound (Photo:Reuters)
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The Central Bank of Egypt (CBE) may raise interest rates when it meets later Thursday, say experts. 

An increase in rates could be intended to ease pressures on the Egyptian pound by protecting local currency deposits. The CBE's steadily falling international reserves are making it increasingly difficult to support Egypt's currency.
 
If it does raise interest rate it will be the second time the bank's Monetary Policy Committee has taken such a decision in the last three months. 
 
On 24 November, the CBE lifted the rate one per cent, its first change since September 2009.  
 
Critics say an increase in interest rates will do little to alleviate slow economic growth and the weak credit on offer to the private sector. 
 
Others, such as investment bank Beltone Financial, claim there is more at stake than slow economic growth.
 
“Since currently economic growth performance has become increasingly linked to the political situation in Egypt, we believe the CBE sees that even with a further tightening monetary policy, economic growth will not be significantly harmed more than it is right now,” said a note
from Beltone.
 
It added that a banking crisis was a bigger danger than sluggish economic growth.
 
Beltone said that while banks currently lack the appetite to lend to the private sector due to persistent political stability, there is also flagging demand from the private sector, with no investments being injected into the economy.
 
Instead, banks have preferred to purchase government debt.
 
In its last MPC meeting on 24 November 2011, the CBE raised the overnight deposit to 9.25 per cent.
 
It also hiked the overnight lending rate and the 7-day repo rates to 10.25 per cent and 9.75 per cent respectively
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