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Egypt: Central Bank Keeps Key Interest Rates Unchanged

Egypt: Central Bank Keeps Key Interest Rates Unchanged

Friday, 24 May, 2019 - 05:15
FILE PHOTO - The headquarters of Egypt's Central Bank are seen in downtown Cairo, Egypt January 11, 2018. REUTERS/Mohamed Abd El Ghany
Cairo - Asharq Al-Awsat
Egypt's central bank on Thursday kept its key interest rates unchanged.

The central bank held its overnight deposit rate at 15.75 percent and its overnight lending rate at 16.75 percent, a bank statement said.

Leaving them unchanged is "consistent with achieving the inflationary target of 9 percent (±3 percentage points) in 2020 Q4 and price stability over the medium term," the bank said in a statement.

Headline inflation slowed to 13 percent in April from 14.2 percent in March. It had fallen slightly in March from 14.4 percent in February, its highest since November. The bank's target range is 10 percent to 16 percent.

Egypt said earlier this week that it will raise electricity prices by an average of 14.9 percent in the 2019-2020 fiscal year beginning in July.

Egypt has committed to deep cuts to energy subsidies as part of economic reforms linked to a three-year, $12 billion IMF loan program that is now in its final phase.

The reforms include a commitment to removing subsidies on most fuel products by next month.

The Egyptian pound hit a two-year high on Thursday, bucking a downtrend among emerging market currencies with help from inflows in the tourism and energy sectors.

The pound traded at 16.8725 per dollar at 12:30 p.m. on Thursday, having risen through the 17 barrier on Wednesday to close at 16.995, according to a Central Bank average of all bids and offers.

While the deepening trade conflict war between the United States and China has generally heaped pressure on emerging currencies, the pound has risen nearly 5 percent against the dollar since the beginning of the year.

Egypt’s central bank has attributed its strength to “foreign exchange inflows from multiple sources”.

Purchases from abroad of Egyptian treasury bills have surged since late 2016 when the central bank floated the pound, then pegged at 8.8 to the dollar, under the terms of the deal with the IMF.

Tourism revenues and remittances from Egyptians working overseas have also risen sharply, and large natural gas discoveries off the country’s Mediterranean coast have changed Egypt from a net gas importer to a net exporter.

Still, the increase in short-term debt has made the pound vulnerable to the strategies of foreign investors, bankers said.

“Regardless of how the dollar is trading in the world, the main thing that will impact the Egyptian pound is hot money departing,” or a global flight from emerging markets, said one banker who asked not to be named.

Some bankers say the central bank has been intervening indirectly in the market to support the pound, though the bank has denied this.

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