CAIRO: Egypt s Central Bank said Thursday it cut its key overnight deposit rate by 0.25 percentage points, as the government looked to further stimulate spending and sustain growth in the Arab world s most populous nation.
The latest cut brought the benchmark rate down to 8.25 percent, its lowest level since June 2006, according to the bank s Web site. The overnight lending rate was also lowered by 25 basis points to 9.75.
The reduction came as Egyptian officials have voiced optimism that the country – where the UN says nearly half of the 78 million residents live on less than $2 per day – has weathered the worst of the global recession,
In a statement on its Web site, the bank said real economic growth in 2008-2009 was 4.7 percent, a level that was better than previously expected at the outset of the global financial crisis yet remains below the seven percent average registered over the past three years.
Still, they were shallower than expected by many analysts. Cairo-based investment bank EFG Hermes said it had expected a half-percentage point reduction, and that the central bank will continue to cut rates in 2009, as long as food price rises do not spill over and cause a general rise in inflation.
Since peaking at almost 24 percent in August 2008, inflation has been quickly dropping – reaching a 20-month low of nine percent last month. The slide has been driven largely by a general decline in commodities prices since late last year.
The bank noted that food price volatility continued to be the determining factor in the overall inflation level – an uncertainty analysts have linked in part to the increase in prices for foodstuffs during the Muslim holy month of Ramadan, which is slated to end within days.
While Egyptian officials have said prudent fiscal policies helped them stave off the worst of the economic downturn, the concern was that the weakness in key revenue sectors such as tourism, worker remittances and the Suez Canal would translate into tighter government spending and a subsequent cut in the subsidies on which many Egyptians depend for daily needs.
The bank said that amid signs that the world s worst recession in decades appeared to be recovering, the current level of policy interest rate is appropriate and supportive of the economic recovery while consistent with maintaining underling inflation with the central bank s comfort zone.