CAIRO: The Central Bank of Egypt (CBE) cut overnight deposit and lending rates, the bank said Friday, in a bid to encourage lending.
The bank cut its overnight deposit rate by 50 basis points to 9.5 percent and its overnight lending rate by 100 basis points to 11 percent, according to a statement published on its website.
The rate cut was expected after Egypt saw inflation fall to 11.7 percent in April, the lowest in more than a year, from 12.1 percent in March.
The decision came about after a Thursday night meeting of the CBE’s Monetary Policy Committee (MPC).
“The width of the corridor has been narrowed from 2 percent to 1.5 percent read the statement, as “the dire prospects for global growth in 2009 are likely to exert further downward pressures on external demand with unfavorable repercussions on the domestic growth outlook.
Egypt’s economy grew by 4.3 percent in the three months ending March, on the back of expanding construction, telecommunications and transportation sectors.
The growth rate was up from last quarter’s 4.1 percent, which surprised analysts and even Investment Minister Mahmoud Mohieldin, who called it “a breakthrough.
Last week, Reham ElDesoki, senior economist at Beltone Financial, told Bloomberg she expects a rate cut but added that the CBE will likely hold rates from now on as “monthly inflationary pressures are increasing.
Annual headline inflation has dropped a cumulative 11.9 percent since its peak in August 2008, the bank said.
The CBE has slashed rates twice in 2009, most notably in February when it cut rates by 1 percent, its first such move in three years.
Members of the business community hailed the decision. “Every cut for the lending rate takes away a huge burden off investors’ shoulders. It [helps them] cope up debt, perform better, and eventually, this will reflect positively on the [Egyptian] economy as whole, said Mohamed El-Monofy, head of the Sixth October City’s Investors Society.
“We are looking forward for more cuts – if not to reach other countries’ rates, which is 1 percent in some cases, to [at least] reach 7 percent [in Egypt], he said, particularly at times of economic crisis.
The MPC said it will “continue to take the necessary measures to contain the adverse effects of the global economic turmoil on the domestic economy, provided that they do not conflict with the price stability objective, the statement read.
“The decision is in favor of highly capitalized corporations, not the small and medium enterprises, said Hassan Abbass, general manager of the Egyptian Consultant Company for Investment Support and Development.
He does not expect the rate cut to affect the business environment dramatically, saying that “unfortunately, we don’t have the entrepreneurial spirit in Egypt, which might encourage people to take their money out of banks and invest it in their own way. .People will be moderate in their reaction to the [rate] cut.
Recognizing that the news may not be all that bright for depositors, Ismail Hassan, former CBE governor and current CEO of Misr Iran Development Bank, said: “For every decision there must be some positive aspects and negative ones, and the choice between two alternatives should go for the national interest not for one group.
“This is the only way to stimulate investment and production; this should eventually increase Egyptian production to replace imports, which will consequently enhance the balance of payments, trade and the whole economy.
“Most, if not all, world’s countries have cut interest rates in the past six months.