Egypt central bank says forex reserves, banks secure

UPDATE 1: Foreign reserves at $35bn, banks' foreign positions at $15bn. 
Egypt central bank says forex reserves, banks secure
By Will Rasmussen
Sun 12 Oct 2008 11:38 PM

The Egyptian central bank, seeking to reassure turbulent financial markets, said on Sunday monetary policy will act to support economic growth, in an indication that a cycle of raising interest rates could be nearing an end.

Central Bank Governor Farouk Al-Okdah, in a rare news conference with the prime minister and investment minister, said the bank's foreign reserves of around $35 billion and $15 billion in overseas positions of Egyptian banks, were secure.

"We will pursue the policy that will still achieve our overall objective but we will not by any means ignore what is happening in the market and [will] make sure that the growth will happen and we will support that in the near future," he said. "Banks, thank God, are strong and in an excellent state."

Investment Minister Mahmoud Mohieldin, however, said the most populous Arab country was not immune from the worst global financial crisis in nearly 80 years.

He said Egypt would be content to attract $10 billion in foreign direct investment (FDI) in the current 2008/09 fiscal year, down from around $13 billion in the previous year.

Like many countries across the world, Egypt has seen its stock market plummet, losing 35 percent of its value since the beginning of September. Prime Minister Ahmed Nazif said a global downturn could also impact Egypt's tourism, Suez Canal receipts and exports.

"If there is a slowdown in the world economy, the number of tourists could decline," Nazif said. "The same thing for the Suez Canal... foreign investment."

The Egyptian economy grew by 7.2 percent in the 2007/08 fiscal year, the fastest pace in decades. Trade and Industry Minister Rachid Mohamed Rachid said last week the government was maintaining its growth target at 6 to 7 percent for the current 2008/09 year.

But the country also faces a tough challenge in high inflation, which economists polled by Reuters in July said would drag private consumption down and slow economic growth to below 7 percent this year.

The central bank has raised its key overnight interest rates six times this year to contain inflation, which fell on Thursday to 21.5 percent in urban areas in the year to September, from 23.6 percent in the year to August.

The government has blamed inflation mainly on high international food prices, which have begun to decline as a result of the global financial crisis.

Reham Al-Desoki, a senior economist at Egyptian investment bank Beltone Financial, said Al-Okdah's remarks were a hint that the monetary tightening cycle was near its end but it was still early for rates to go down this year.

"I think the central bank will be more inclined to hold rates until they are sure that non-food inflationary pressures are subsiding," she told Reuters. "I think it would be too early to cut rates this year."

Nazif said the government was working on a plan that could offer more incentive to attract foreign investment in various sectors but did not offer more details.

He said the government has decided to put off the sale of 67 percent of the state-owned Banque du Caire, waiting for better market circumstances. Egypt cancelled an auction to sell the bank in July, saying the bids were too low. (Reuters)

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