Third rate hike in Egypt this year

The Egyptian central bank on Friday raised its key overnight interest rates for the third time this year to contain inflation expectations after recent government decisions to raise the prices of fuel and cigarettes.

The bank's monetary policy committee (MPC) said in a statement it decided at its meeting late on Thursday to lift its overnight deposit rate and lending rate by 50 basis points to 10 per cent and 12 per cent respectively.

It raised the rates by 50 basis points in March and by 25 bps in February. "Despite tentative signs of moderation in international wheat prices, the domestic inflation outlook is affected by the latest regulated price adjustments," the statement said.

Egypt's parliament approved steep increases in fuel and cigarette prices and vehicle licence fees on Monday to cover the costs of public-sector pay hikes that President Hosni Mubarak proposed last week.

The statement said the immediate one-off effect of the price rises and their consequent second round effect pose an upside risk to inflation prospects. Urban inflation in Egypt rose to 16.4 per cent in the year to April, from 14.4 per cent in the year to March, the state statistics agency Capmas said on Thursday. It was the highest since December 2004.

Analysts expect the new government measures to push up inflation to at least 20 per cent in the next few months as the effect of the fuel price rise ripples through the economy.

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