Egypt Cuts Discount Rate by 0.5 percent
Egypt's Central Bank on Thursday cut its discount rate to 11.5 percent from 12 percent in a move welcomed by market operators, but which some analysts feared would do too little to boost the sluggish economy, reported Gulf Times.
The half point cut, the bank's first rate adjustment for 28 months, was announced by a bank official who gave no further details. It followed a reduction in central bank reserve requirements which took effect a week ago, said the report.
Equity and fixed income traders were quoted as saying it should help shore up a sagging stock market and increase domestic liquidity in a market which has recently been plagued by cash shortages.
But Anais Faraj, emerging markets economist at Nomura in London, said: "It's a good sign, but they could have done much, much more. It (the discount rate) should be 10 percent right now and they should have done it six months ago," said "The key thing is to catch up, but I'm worried that having done this, they think they've done enough now," he said.
Egyptian gross domestic product is forecast to grow 3.4 percent in the financial year which ends in June, said the report, adding that the draft budget for 2001-02 sees growth easing to 3.3 percent. Faraj said the impact of the rate cut on the Egyptian pound was unclear. The currency has recently been slightly easier in its band around its "pegged" central rate of 3.85 against the dollar.
The rate cut had little immediate impact on Egyptian markets. Bond dealers said trade remained slow, but activity was expected to pick up before the session ends. Money market traders reported no additional activity or changes in rates.
Egyptian pound overnight interbank rates stand at around 10 percent. Treasury bills yield 9.126 percent for 182-day paper and 9.105 percent for 91 days. Analysts noted that a reduction in central bank reserve requirements last week was a first step to improving market liquidity, said the paper.
"This not the first step the central bank has taken. It first reformed reserve ratio requirements allowing banks to inject more money into the market," said Waleed Al-Bendary, senior analyst at Dynamic Securities in Cairo – Albawaba.com
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