Egyptian cbank seen keeping rates on hold

By Patrick Werr

CAIRO (Reuters) - Egypt's central bank, with an eye to keeping inflation in check, is expected to keep its key interest rates on hold this week, marking the first pause since it began cutting rates in February.

Seven out of nine economists polled by Reuters expected the bank's Monetary Policy Committee to keep rates unchanged when it meets on Thursday, while two forecast a 25 basis point cut.

Economists said the monetary authority was more likely concerned with inflation rather than growth, which has been showing signs of picking up.

"It's very hard to justify rate cuts when headline inflation is going up, especially for Egypt, where when inflation goes up, it goes up very fast," said Turker Hamzaoglu, an economist with BoA Merrill Lynch.

At its last meeting on September 17, the bank cut rates by 25 basis points, saying it believed underlying inflation would remain within its "comfort zone".

Figures released since that meeting, however, show urban prices rose 1.9 percent month-on-month in September, up from 1.5 percent in August, its second biggest rise in 12 months. Year-on-year, September urban prices rose 10.8 percent.

GDP, on the other hand, grew by an annualised 4.9 percent in the first quarter of the financial year that began on July 1, cabinet spokesman Magdy Rady said on Wednesday, up from 4.7 percent in the 2008-09 financial year.

"Growth is picking up. It's not like the third quarter of last year. It's picking up even though its very slow," said Hamzaoglu.