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Egypt expected to keep interest rates on hold

Measure is an effort to tame inflation

Published: Updated:

Egypt is expected to keep interest rates unchanged at a monetary policy meeting on Thursday, as officials try to balance the need to stimulate the economy while curbing inflation pressures, a Reuters survey shows.

Urban consumer inflation in the most populous Arab country is high at 10.4 percent in October, having risen from 10.1 percent in September, giving the central bank little room to ease policy to try and shore up the battered economy.

The bank is under pressure to keep interest rates high to attract funds out of foreign currencies and into the Egyptian pound. It has spent tens of billions of dollars supporting its currency since the 2011 uprising which hammered tourism revenues and foreign investment.

In an effort to balance inflation pressures while the government attempts to stimulate the economy the bank kept interest rates on hold at its last monetary policy meeting in October.

Seven economists surveyed by Reuters expect it to leave rates unchanged again on Thursday.

"Inflation still needs to be tamed, for any reduction in rates. Also, for rates to be increased there aren't any real signs of growth," said Allen Sandeep, an economist at Naeem Brokerage.

The bank has kept its key rates steady since cutting them in August and September by a cumulative 100 basis points.

"We think that, having reversed 100 basis points out of the 150 bps of tightening it implemented over 2011-13, the central bank will now look for further economic and political stability before reversing the final 50 bps, particularly given rising inflation pressures," said Liz Martins, senior economist at HSBC.

Badly damaged

Political instability since the uprising that toppled autocrat president Hosni Mubarak in 2011 has driven tourists and investors away, badly damaging the economy. Egypt faced another setback when the army ousted Islamist President Mohammad Mursi in July after mass protests against his rule.

In an effort to stimulate the economy the government launched a 29.6 billion Egyptian pound ($4.3 bn) stimulus package this year after Gulf countries pledged $12 billion in aid.

The economy grew a meager 2.2 percent in the year to June 30, far too slow to make an impact on youth unemployment, estimated at over 20 percent.

The Egyptian pound is being propped up by central bank dollar sales, introduced last December to help counter a run on the currency as the plunge in foreign investment and tourism caused a sharp fall in foreign reserves.

The bank kept its deposit rate at 8.75 percent and its lending rate at 9.75 percent last month. It also kept its discount rate and the rate it uses to price one-week repurchase and deposit operations at 9.25 percent.