Egypt's central bank raised its overnight deposit and lending rates by half a percentage point after inflation accelerated to a three-year high.
The overnight deposit rate was increased to 10 percent, while the overnight lending rate was raised to 12 percent, the central bank said in a statement on its Web site today. The Cairo-based bank boosted rates in its previous two meetings by a total of three-quarters of a point in response to accelerating inflation.
"The balance of risks to the inflation outlook continues to be on the upside,'' Rania Al-Mashat, division chief of the monetary policy unit at the central bank, said in the statement. "Authorities will not hesitate to adjust the key central bank rates to ensure price stability over the medium term.''
Urban inflation accelerated to 16.4 percent in April, exceeding the government's target range for a fourth consecutive month. The rate rose from 14.4 percent in March. Inflation in April was driven by a 22 percent increase in food and beverage prices.
"Unfortunately what the central bank can do to impact inflation is limited at the moment because most of the price hikes come from imported materials,'' said Reham El-Desoki, a senior economist at Beltone Financial, a Cairo-based investment bank.
Egypt imports about half of its grain.
Price Increases
Parliament approved price increases for several products on May 5, including fuel and cigarettes, and boosted taxes on vehicles to fund a 30 percent pay raise for state workers, amid growing public discontent over inflation.
"These price adjustments pose an upside risk to the inflation prospects,'' Al-Mashat said.
Falling U.S. dollar interest rates have prompted Egyptian depositors to change their U.S. currency-denominated deposits to Egyptian pounds, adding to money supply, Mohamed Abu Basha, an analyst at investment bank EFG-Hermes Holding SAE, wrote in a report.
Liquidity supply has grown 26 percent since March, the highest since 1999, according to the central bank.
"The central bank is trying to withdraw as much liquidity as possible from the system but the banks are not responding,'' el- Desoki said. "It is going to be useless at the end.''
The overnight deposit rate was increased to 10 percent, while the overnight lending rate was raised to 12 percent, the central bank said in a statement on its Web site today. The Cairo-based bank boosted rates in its previous two meetings by a total of three-quarters of a point in response to accelerating inflation.
"The balance of risks to the inflation outlook continues to be on the upside,'' Rania Al-Mashat, division chief of the monetary policy unit at the central bank, said in the statement. "Authorities will not hesitate to adjust the key central bank rates to ensure price stability over the medium term.''
Urban inflation accelerated to 16.4 percent in April, exceeding the government's target range for a fourth consecutive month. The rate rose from 14.4 percent in March. Inflation in April was driven by a 22 percent increase in food and beverage prices.
"Unfortunately what the central bank can do to impact inflation is limited at the moment because most of the price hikes come from imported materials,'' said Reham El-Desoki, a senior economist at Beltone Financial, a Cairo-based investment bank.
Egypt imports about half of its grain.
Price Increases
Parliament approved price increases for several products on May 5, including fuel and cigarettes, and boosted taxes on vehicles to fund a 30 percent pay raise for state workers, amid growing public discontent over inflation.
"These price adjustments pose an upside risk to the inflation prospects,'' Al-Mashat said.
Falling U.S. dollar interest rates have prompted Egyptian depositors to change their U.S. currency-denominated deposits to Egyptian pounds, adding to money supply, Mohamed Abu Basha, an analyst at investment bank EFG-Hermes Holding SAE, wrote in a report.
Liquidity supply has grown 26 percent since March, the highest since 1999, according to the central bank.
"The central bank is trying to withdraw as much liquidity as possible from the system but the banks are not responding,'' el- Desoki said. "It is going to be useless at the end.''
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1 comment:
Egypt is a basket case.
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