CAIRO: Egypt s central bank said on Friday it had raised key interest rates by a half percentage point, its sixth increase this year, to contain inflation expectations. It raised overnight deposit rates to 11.5 percent, the overnight lending rate to 13.5 percent and the discount rate to 11.5 percent - in line with analysts expectations. Having weighed both the international and domestic information available, the (central bank) judges that an additional rate hike is needed today to contain inflation expectations, the central bank said in a statement issued the day after it took the rate decision. Rising prices had led to violent street protests in Egypt s largest cities. Since then the inflation rate in urban parts of Egypt has raced higher, hitting a 16-year high of 23.6 percent in August. The central bank, which has raised rates at every meeting this year, said food price inflation was easing but prices of non-food items were still high. While international prices for agricultural products, such as wheat, were retreating, it said this might not be fully reflected locally. The impact on domestic food inflation might not be fully reflected given downward price rigidities in domestic markets, the central bank said. The Reuters-Jeffries CRB index, a global commodities benchmark, is trading at its lowest level since last October, after markets like gold, copper, wheat, corn and soybeans gave back most of the gains they made earlier this year. Egypt s central bank may halt its series of rate rises at its next meeting and wait for past tightening in monetary policy to feed through to the economy, said Caroline Grady, analyst at Deutsche Bank. It s hard to see how further rate hikes will do much to rein in current inflation, she said. The interest rate transmission in Egypt is low and coupled with the fact that it takes time for rate hikes to have any effect I don t see much impact from (the central bank) hiking further. Inflation was likely remain high until early 2009, said Reham ElDesoki, economist at Cairo-based investment bank Beltone Financial. The low base of the CPI until January 2009 will sustain a high headline inflation figure until December, after which the CPI should decline, she said. Headline urban inflation could average 24 percent by the end of the year with an annual average of 20 percent in 2008, she said.
