Egypt holds key rates as inflation rate slows

Cairo: The Egyptian central bank held its benchmark interest rate at a four-year low for the seventh straight meeting after core inflation was almost unchanged.

The Cairo-based bank kept its overnight deposit rate at 8.25 per cent, the lowest level since November 2006, according to a statement on its website.

All six economists surveyed by Bloomberg ahead of the meeting of the Monetary Policy Committee had predicted the decision.

"The monetary policy committee assesses that inflationary pressures remain subdued and that the current level of policy interest rate is appropriate and supportive of the economic recovery," the central bank said in its statement.

Core inflation, which excludes the costs of fruits and vegetables as well as regulated prices, was 6.70 per cent in June compared with 6.69 per cent in the previous month.

Headline inflation in urban areas of Egypt, the rate that the central bank uses to calculate the core measure, accelerated to 10.7 per cent from 10.5 per cent in the same period.

Egypt's economy expanded at a 5.9 per cent annual rate in the second quarter of 2010, the government said.

For the fiscal year that ended in June, the economy grew 5.3 per cent compared with 4.7 per cent the previous year.

"Headline and core inflation continued to decelerate in the second quarter of 2010 on the back of lower year-on-year food prices," Mohammad Abu Basha, an economist at Cairo-based investment bank EFG-Hermes Holding SAE, said in a report yesterday.

"However, as growth continues to accelerate risks are increasing. We therefore expect interest rates to remain unchanged until the end of 2010."

The central bank, which meets every six weeks to discuss monetary policy, last lowered the benchmark rate in September.