Egypt Cuts Interest Rate for First Time Since 2006
Egypt’s central bank cut its benchmark interest rate for the first time since April 2006 as inflation and economic growth slowed in the Arab world’s most populous nation.
The overnight deposit rate was lowered 100 basis points to 10.5 percent, while the lending rate was cut by the same amount to 12.5 percent, the Cairo-based central bank said on its Web site today. The cut was the biggest since at least 2005.
“The decision is in line with the general expectation,” said Reham El-Desoki, an economist at Cairo-based investment bank Beltone Financial. “We expect the monetary loosening cycle to continue with further cuts throughout 2009, with cumulative cuts of around 300 basis points.”
Central banks worldwide have reduced interest rates as the worst financial crisis since the Great Depression cuts commodity prices and economic growth. Wheat, of which Egypt is the world’s largest importer, has declined 57 percent since March, helping to push the urban inflation rate to an 11-month low of 14.3 percent in January.
The rate reduction won’t be sufficient to revive consumer spending and investment and the government will probably need to announce further spending increases, El-Desoki said. The government will double its economic stimulus plan to 30 billion Egyptian pounds ($5.4 billion), Finance Minister Youssef Boutros-Ghali said Feb. 5.
Inflation Outlook
Countrywide inflation, which eased to 14 percent in January from 18.7 percent the previous month, is expected to slow to 9 percent at the end of the first quarter, Trade and Industry Minister Rachid Mohamed Rachid said Jan low cost payday loans. 28.
“The risks to the domestic inflation outlook are lower in light of the deteriorating prospects for global growth,” Rania Al-Mashat, division chief of the central bank’s monetary policy unit, said in a statement. The monetary policy committee “will continue to contain the adverse effects of the global economic turmoil on the domestic economy.”
Egypt’s central bank last year raised the key rate six times by a total of 2 3/4 percentage points to damp inflation, which it targets at a range of between 6 percent and 8 percent.
Growth in the economy, which depends on tourism, tolls from the Suez Canal and worker remittances, will probably ease to 3.5 percent in 2009 from 7 percent during the past two years, Standard Chartered said in a report on Feb. 12.
Slowing Down
Economic expansion slowed to an annual 4.1 percent in the last quarter of 2008 as revenue growth from the Suez Canal declined as a result of the global financial crisis.
Widespread labor strikes over state-asset sales, job cuts and high food prices have closed government-run factories off and on during the past two years and forced the Mubarak government to raise state wages in May 2008.
Egypt’s budget deficit was 6.9 percent of gross domestic product for the fiscal year through June. The government has said it expects the deficit to remain the same this year and widen to 9.5 percent in June 2010.