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Egypt Holds Rates at Record High

The overnight lending rate also was unchanged at 13.5 per cent, the central bank said in a statement.

However, the bank hinted a rate cut remains imminent, saying there would be increased scope for “a less restrictive monetary policy stance” in the coming months.

“While most of the upside risks to inflation have eased on the back of the improving outlook for international commodity prices in light of the projected slowdown in global economic activity and the consequent moderation in domestic economic growth, the current inflation rates remain elevated,” the bank said in a statement.

Urban consumer prices, the inflation figure the bank says it most closely watches, dipped to 20.3 per cent in the year to November from a 16-year high of 23.6 per cent in August as global food and commodity prices retreated.

High prices for basic foodstuffs, particularly bread, sparked civil unrest earlier this year.

“We thought they would hold rates today just to try to force inflation down more quickly,” said Angus Blair, head of research at Beltone Financial.

The decision to hold was foreshadowed by Governor Farouk el-Okdah’s comments on Sunday that any monetary easing would only be done “at the right time, when we can control inflation.”

He suggested that by January inflation may be at an acceptable rate. The next MPC meeting is scheduled for February 12.

His comments were mirrored in the bank’s statement, which said expected falls in inflation in coming months would give them more room to manoeuvre to encourage growth.

“As inflation is projected to decline significantly over the coming months, the scope to move towards a less restrictive monetary policy stance in the period ahead is increasing in order to prevent economic growth from falling below its potential,” the statement said.

Inflation Versus Growth

Price stability remains the central bank’s primary concern, while the government is eager to boost growth in the most populous Arab country.

The government this month revised its growth forecast down to 5.5 per cent for this year and next, after 7.2 per cent growth in the 2007-8 financial year, and has announced a stimulus package worth 15 billion Egyptian pounds ($2.7 billion) to foster growth and encourage infrastructure investments.

While relatively sheltered from the global slowdown, Egypt’s revenues will be hit by any slowdown in Suez Canal traffic, fewer tourists and less demand for construction.