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Sat 20 Jun 2009 09:10 PM

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Egypt's central bank sanctions half-point interest rate cuts

Rate cut comes after finance minister warned last month that growth will slow.

Egypt’s central bank reduced interest rates on Saturday by half a percentage point, after growth slowed and the inflation rate fell to the lowest in 17 months.The bank cut the benchmark overnight deposit rate to 9 percent and the overnight lending rate to 10.5 percent.

It announced the decision in a faxed statement, confirming remarks made Friday night by a senior central bank official, who spoke on condition of anonymity, according to news agency Bloomberg.

Egypt’s economy has expanded by more than 7 percent annually for the past three years, helped by rising revenue from tourism and the Suez Canal and foreign direct investment.

Finance Minister Youssef Boutros-Ghali said on May 28 that he expects growth to slow to between 4.5 percent and 4.8 percent in the current fiscal year ending this month.

Economic growth ''remains well below potential and we see growth decelerating,'' Mohamed Abu Basha, an economist at investment bank EFG-Hermes, said in a note to clients before the bank’s announcement. He forecast a half-point cut.

Four out of eight economists surveyed by Bloomberg News forecast that the bank would not cut rates, while the remainder predicted reductions ranging from a quarter-point to 1 percentage point.

Urban inflation, the benchmark rate that the central bank monitors, eased to 10.2 percent in May, the lowest since December 2007, from 11.7 percent the previous month.

Inflation is expected to ease to 7 percent by September, Turker Hamzaoglu, an emerging markets economist at Merrill Lynch & Co., said in an e-mailed statement Saturday.

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