Egypt’s central bank unexpectedly kept its benchmark interest rate unchanged Friday after raising it in March, as pressure on policymakers eased following a rise in foreign reserves.
The overnight deposit rate was kept at 9.75 percent, the Cairo-based bank said in a statement. Four out of six economists had expected Governor Hisham Ramez to increase the measure by at least 25 basis points, according to data compiled by Bloomberg.
HSBC Holdings PLC and Cairo-based investment bank EFG-Hermes forecast no change. The average yield on six-month Treasury bills surged 71 basis points at a sale before the decision to 14.5 percent, the highest level since September and more than 50 percent above notes in Pakistan.
Foreign reserves rose $1 billion in April to $14.4 billion after aid from Libya. The Egyptian pound has weakened 11 percent since December as the central bank sought to conserve reserves, giving politicians time to clinch an International Monetary Fund loan. The drop fueled inflation, one cause of the 2011 uprising against Hosni Mubarak.
“We still believe that there has to be another hike in interest rates this year to curb inflationary pressures and increase the Egyptian pound-deposits,” Mona Mansour, chief economist at Cairo-based CI Capital, said by phone.
Mohammad Abu Basha, an economist at EFG-Hermes, Egypt’s biggest investment bank, said in a note before the decision that, while he saw no change today, the central bank would raise interest rates between 50 basis points and 100 basis points this year.
More than two years after the ouster of Mubarak, Egypt is mired in a polarizing and sometimes violent battle between supporters and opponents of Islamist President Mohammad Mursi. The turmoil hurt revenue from tourism and dried up foreign investments in local-currency government debt. It has also disrupted efforts to sign a $4.8 billion IMF loan, which authorities say can unlock more than $10 billion in external support.
Egypt’s credit rating was lowered one step to CCC+, seven levels below investment grade, from B-, at Standard & Poor’s today. The rating is one level above Cyprus and one lower than Greece and Pakistan, according to data compiled by Bloomberg.
Inflation in the Arab country, whose imports include fuel and wheat, accelerated in three out of the first four months this year. The annual rate rose to 8.1 percent in April from 7.6 percent in the previous month, the government’s statistics agency said today. The economy is stuck in its worst slowdown in two decades, according to IMF data.
The average yield on one-year Treasury bills jumped 70 basis points at today’s sale to 14.74 percent, according to data compiled by Bloomberg. The government’s $1 billion of 5.75 percent dollar bonds also dropped, sending the yield five basis points higher to 7.2 percent at 6:09 p.m. in Cairo.