EGYPT: CENTRAL BANK CUTS RATES AGAIN

UNCLAS CAIRO 000534 SIPDIS DEPT FOR NEA/ELA TREASURY FOR BRYAN BALIN AND FRANCISCO PARODI E.O. 12958: N/A TAGS: ECON EAID EFIN EINV PGOV EG SUBJECT: EGYPT: CENTRAL BANK CUTS RATES AGAIN REF: A. 09 CAIRO 282 ¶B. 09 CAIRO 476 ¶1. (U) At the March 26 meeting of its Monetary Policy Committee (MPC),the Egyptian Central Bank (CBE) cut its overnight lending rate, deposit rate, and the discount rate by 50 basis points each. Following this cut, the lending and deposit rates stand at 12% and 10% respectively with the discount rate at 10%. This move follows a 100 basis point cut by the MPC in February (reftel A) and continues an easing cycle that acknowledges both lower inflation and a slowing economy. ¶2. (U) In its statement, the MPC cited the 10.1% cumulative drop in headline CPI inflation over the last six months and a lower GDP growth rate of 4.1% in Q2 2008/9 (Oct-Dec 2008) compared to 5.8% in Q1 and 7.7% in Q2 2007/8. The statement also highlighted lower exports, reduced Suez Canal activity and slower growth in the Egyptian manufacturing sector. ¶3. (U) Many analysts had expected the CBE to cut rates by 100 basis points, and it's likely that a slower-than-expected drop in the rate of inflation for foodstuffs along with continued GOE interest in controlling the devaluation of the Egyptian pound (reftel B) may have limited this month's cut. The MPC statement projects that "annual inflation will fall towards the CBE's comfort zone by mid-2009." ¶4. (U) The CBE will likely continue cutting rates throughout the first half of the year. In its statement, the MPC cites "dire prospects for global growth" as likely to put pressure both on exports and domestic growth. As inflation continues to ease towards single digits, interest rates will likely follow. SCOBEY