Another brick in the wall
The CBE has kept its overnight rates unchanged for the fifteenth time in a row. The overnight deposit and lending rates stand at 8.25 and 9.75 per cent respectively.
"The CBE seeks to rein in the cost on local State debts. It's highly important to keep interest rates at their present levels until the end of the year," said Hany Riyad, an analyst at the Cairo-based Financial and Legal Consultants Centre.
Egypt's debts total LE1.08 trillion ($182 billion) including an external debt worth $34 billion.
"Declining growth rates and high inflation are undermining the economy. It is a state of stagflation, which may worsen if production rates get back to normal soon," Riyad said.
Keeping the rates steady may drive investors to dollarisation, adding more pressure on the Egyptian pound, analysts say.
"The local pound is expected to fall versus the US dollar. The greenback may rise to LE6.1 (from LE5.95) after the Muslim fasting month of Ramadan," he forecast, referring to the holy month, which is due to begin on August 1.
From January to June, Egypt's foreign reserves shed $9.5 billion. Foreign reserves stood at $26.56 billion at the end of June, according to CBE data. Foreign reserves totaled $36 billion at the end of December.
"It is a must to boost investment to ease unemployment and raise the country's gross domestic product (GDP). Foreign investment may be hard to attract in the meantime. The Government should encourage local investors to help bridge the gap," he explained.
Economists warn against rising inflation rates in the coming months. Higher inflation would weaken the local pound and push demand for gold.
Inflation in the most populous Arab country of 80 million people rose to 11.8 per cent in June, according to the State-run Central Agency for Public Mobilisation and Statistics (CAPMAS).
Inflation reached a record high of 23.6 per cent peak in August 2008.
The precious metal, deemed to be a safe haven from market gyrations, has been rising globally, pushing Egypt's gold sovereign above LE2,110.
Gold prices have jumped more than 12 per cent this year, hovering above $1,620 per ounce on world markets.
Against all odds, Egypt's economy is forecast to grow by more than four per cent over the coming three years, according to Business Monitor International (BMI).
It forecast Egypt's GDP to expand by an average 4.3 per cent between 2011 and 2015.
"Our forecasts see the trend growth in Egypt settle at a lower rate over the coming five years, as the political transition from authoritarian rule to competitive democracy raises political risks, slows reform momentum and weakens investment inflows," the London-based institution said in its Egypt Business Forecast Report Q3 2011.
Former economy minister Sultan Abu Ali told local media last week that the economy was going through “stagflation as production rates have fallen, rising unemployment and slowing GDP growth”.