By Patrick Werr / Reuters
CAIRO: Egypt’s central bank is expected to leave its key interest rates unchanged this week after inflation increased only mildly in February and following a cut in the reserve requirement on local currency deposits that should help to spur growth.
In a Reuters survey, all five economists forecast that Thursday’s meeting would hold overnight rates unchanged at 9.75 percent for lending and 8.25 percent for deposits.
At its last monetary policy meeting on Feb. 2, the central bank left benchmark interest rates unchanged, saying economic growth remained feeble yet warning that local supply bottlenecks could cause inflation to speed up.
Egypt’s urban consumer price inflation, the most closely watched indicator of prices, accelerated to 9.2 percent year-on-year in February from 8.6 percent in January.
Core consumer inflation, which strips out subsidized goods and volatile items including fruit and vegetables, quickened to 7.3 percent in the 12 months to February from 6.86 percent in January.
“Despite the pick-up inflation in February, we expect (inflation) to ease a bit in March and April, largely due to base effects,” said David Cowan, an economist at Citi.
On Tuesday, Egypt’s central bank cut its reserve requirement on local currency deposits to 12 percent from 14 percent, a move analysts said would free up funds sitting idle at the central bank and supply banks with more cash to lend, both to the government and to business.
“Given the recent central bank’s decision to free some liquidity, we believe the government should be trying to maintain a balance between supporting investment and the local currency,” said Alia Mamdouh from CI Capital.
The bank in November unexpectedly raised its rates for the first time in more than two years, a move analysts said was designed to help to support a currency under pressure following the country’s popular uprising.
The government has spent more than $20 billion — well over half its foreign reserves — to support the pound during the economic turmoil after the uprising forced president Hosni Mubarak from power in February 2011.
The central bank said on Feb. 2 the economy had grown by a mere 0.3 percent year-on-year in the third quarter of 2011.