Egypt cuts interest rates for first time in almost three years

Egypt's central bank on Friday announced it would cut interest rates for the first time since 2006, in response to slowed economic growth and inflation, dpa reported.

The Central Bank of Egypt lowered the overnight deposit and lending rates by 100 basis points to 10.5 and 12.5 per cent, respectively, its first cut since April 2006.

"The risks to the domestic inflation outlook are lower in light of the deteriorating prospects for global growth in 2009 and given the sharply declining international commodity prices," Rania al-Mashat, the bank's monetary policy division chief said in a statement explaining the move on Friday.

Egypt's central bankers "judged that a less restrictive monetary policy stance is required at this juncture, in order to stabilize economic growth," she said.

The central bank said inflation slowed to 14.3 per cent annually in January, an 11-month low. Headline inflation dropped to 18.3 per cent in December, down from 20.3 per cent in November. Trade and Industry Minister Rashid Mohammed Rashid has said that he expects inflation to drop to 9 per cent in the first quarter of 2009.

Egypt raised interest rates six times over the course of 2008 in an attempt to control inflation, which bankers say they hope to keep at between 6 - 8 per cent annually.

The central bank cited a decline in food and other commodity prices as contributing to the slow-down in inflation.

Last spring, violence flared in bread queues at government- subsidized bakeries, as spiraling wheat prices drove more of the country's urban poor to rely on subsidized bread. But the price of wheat - of which Egypt imports 7.5 million tonnes a year, more than any other country in the world - has dropped more than 57 per cent since March.

Egypt's monetary policy managers would "continue to contain the adverse effects of the global economic turmoil on the domestic economy" al-Mashat said on Friday.

On February 5, Finance Minister Youssef Boutros-Ghali said the government would double its economic stimulus package to 5.4 billion dollars.

Economic growth slowed to 4.1 per cent in the last quarter of 2008, partly as a result of a decline in traffic through the Suez Canal.

Egypt depends heavily on transit fees from the canal for revenue. According to official figures, the canal generated income of 5.11 billion dollars in 2008.

In response to the decline in canal traffic, Egypt announced on January 5 it would indefinitely freeze transit fees for ships passing through the canal.

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