Egypt c.bank raises key interest rates by 150 basis points
By Asma Alsharif
CAIRO, March 17 (Reuters) - Egypt's central bank raised its key interest rates on Thursday by 150 basis points to curb inflationary pressures, exceeding economists' and bankers' expectations three days after it devalued the pound.
The bank's Monetary Policy Committee (MPC) raised the overnight deposit rate to 10.75 percent from 9.25 percent and the overnight lending rate rose to 11.75 percent from 10.25 percent, it said in a statement.
Egypt has been struggling to restore economic growth since a mass uprising in 2011 against veteran leader Hosni Mubarak ushered in a period of political uncertainty that has scared away tourists and foreign investors, the major sources of hard currency.
Reserves have more than halved from 2011 to $16.5 billion in February.
The central bank had been taking measures to support the pound but on Monday devalued the currency to 8.85 pounds per dollar from 7.73 pounds. Two days later the bank strengthened it slightly to 8.78 per dollar as it adopted a more flexible exchange rate policy.
All 10 contributors to a Reuters poll had predicted the MPC would hike rates to defend the pound following the devaluation, with forecasts ranging from a 50 basis point hike to a hike of 100 basis points.
Annual urban consumer inflation eased for a second consecutive month to 9.1 percent in February from 10.1 percent in January.
"The central bank's monetary policy will be geared towards maintaining price stability by avoiding double digit inflation rates over the medium-term to maintain real incomes," the central bank statement said.
"Moreover, stable inflation rates are conducive to achieving sustainable economic growth," it added.
The MPC hiked interest rates by 50 basis points in December but kept them steady at its January meeting as it tried to balance the inflationary pressures with the need to stimulate the economy.
In anticipation of a hike at Thursday's meeting yields on Egyptian treasury debt had jumped aggressively this week.,
SUPPORTING THE POUND
Bankers said a black market for dollars has put pressure on the pound and sucked up liquidity from the banking sector, but the central bank has been taking measures to support the currency.
In an attempt to boost dollar liquidity Egypt's top three state-run banks launched dollar-denominated certificates to Egyptians living abroad with attractive yields.
One banker said that, in addition to fighting inflation, the rate hike may also have been aimed at increasing the attractiveness of the pound.
"They probably raised (rates) by 150 basis points in order to defend the positive carry trade after state banks raised interest rates on U.S. dollar deposits in state banks," he said.
On Monday Egypt's top two state banks, the National Bank of Egypt and Banque Misr, said they would offer Egyptian pound investment certificates with a 15 percent yield in return for foreign currency.
The government projects economic growth of around 5.5 percent this fiscal year, compared with an estimated 4.2 percent in 2014/15.
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Reporting by Asma Alsharif; Editing by Andrew Heavens and Gareth Jones
Our Standards: The Thomson Reuters Trust Principles.
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