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Fri 26 Aug 2011 10:35 AM

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Egypt's rates on hold amid concerns about inflation

Central bank keeps benchmark interest rates steady as economy contracts following revolution

Egypt's rates on hold amid concerns about inflation

Egypt's central bank has kept its benchmark interest rates on hold, reflecting continued concern about inflation and analysts expect rates to remain unchanged in the months ahead.

All four economists in a Reuters survey had forecast the overnight lending and deposit rates would remain unchanged at 9.75 percent and 8.25 percent, respectively.

There has been no change in the two rates since September 2009.

The bank kept its seven-day repo rate at 9.25 percent and the discount rate was maintained unchanged at 8.5 percent.

Egypt's economy contracted in the first six months of 2011 as investors and tourists stayed away after the uprising that forced President Hosni Mubarak from power in February. Growth is projected to remain weak in the second half.

Egypt says it will finance its budget deficit for the fiscal year that began on July 1 mainly by selling 120 billion Egyptian pounds ($20.1 billion) in domestic treasury bills and bonds after the ruling military council turned down a $3 billion funding package that the Finance Ministry had sealed with the IMF.

Urban consumer price inflation, the most closely watched indicator of prices, reached its lowest level since December 2010 last month and was down from 11.8 percent in June. But on a monthly basis it stood at 1.2 percent, up from 0.4 percent in June.

"Headline (inflation) figures remain uncomfortably high, despite the recent deceleration ... in July, and core inflation remains sticky but within the central bank's comfort zone," JP Morgan said in a research note before Thursday's decision.

"Rates are set to remain on hold in 2011," it said.

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