Friday, August 8, 2008

Egypt Raises Key Rate To 11%

Egypt's central bank increased its benchmark interest rate for a fifth time this year and warned it will ``not hesitate'' to raise it again to combat the highest inflation rate in the Middle East.

Policy makers increased the benchmark overnight deposit rate by half a percentage point to 11 percent and the overnight lending rate by the same amount to 13 percent, the central bank said in a statement on its Web site today. The Cairo-based bank has raised the deposit rate by a total of 2.25 points this year.

``Inflation expectations are still high,'' said Simon Kitchen, an economist at Cairo-based EFG-Hermes Holding SAE, the biggest publicly traded investment bank in the Arab world. ``There are still inflationary risks that warrant raising rates.''

Emerging markets, including Turkey, Brazil, South Africa and India, have increased interest rates in past months to fight inflation fueled by rising global oil and food costs. Egypt's inflation rate rose to 20.2 percent in June, the highest since the government began regularly releasing records to the public in 1998.

``The monetary policy committee remains concerned about possible propagation of food inflation to non-food inflation,'' Rania Al-Mashat, division chief of the monetary policy unit, said in the statement. ``The monetary policy committee will not hesitate to adjust the key central bank rates to ensure price stability over the medium term.''

Egypt is the world's largest wheat importer. The country bought 7 million tons of wheat from abroad, half of its annual consumption, in the year ending June 30, according to U.S. and Egyptian government statistics.

Accelerating inflation has promoted the government to cut customs duties on imported poultry, ban exports of cement and rice, increase food subsidies and authorize 18 million additional people to receive subsidized food. Public discontent and protests against rising wages led the government to increase the wage of state workers by 30 percent in May.

The economy in Egypt, the Arab world's most populous nation, will probably expand 7.1 percent in 2009 compared with 7 percent in 2008, the International Monetary Fund said in its latest report on its Web site.

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