November 25, 2014 / 5:39 PM / 4 years ago

Egypt central bank seen keeping rates on hold amid nascent recovery

CAIRO, Nov 25 (Reuters) - Egypt’s central bank is expected to keep interest rates on hold on Thursday as inflationary pressure continues to ease and policymakers seek to avoid stifling a nascent economic recovery in the most populous Arab nation.

The economy has been in turmoil since a popular uprising ousted autocrat Hosni Mubarak in 2011, deterring tourists and foreign investors and straining the country’s finances.

To help bring down its swelling budget deficit, the government in July slashed fuel subsidies, raising energy costs for companies and consumers by up to 78 percent.

That pushed up prices and hit business activity in July. But the effect appears to have been short-lived, with the pace of economic activity picking up in the three months since and core inflation continuing to ease in October.

Four economists surveyed by Reuters forecast that the central bank would keep its overnight rates unchanged at 10.25 percent for lending and 9.25 percent for deposits at its policy-setting meeting on Thursday.

“The (central bank) will be wary of snuffing out the economic recovery,” Capital Economics said in a research note.

“Buoyed by a return to political stability and signs that the government is embarking on reforms, foreign investors are already returning to the country,” the note said.

A fifth economist surveyed by Reuters predicted that the central bank would raise both rates by 0.25 percent.

“One of the tactics the central bank will follow is to increase the interest rate to defend the Egyptian pound,” said Eman Negm, an economist at Prime Holding.

Egypt’s currency fluctuated on the black market last week due to a surge in commercial demand for dollars and concerns over Egypt’s plans to repay a $2.5 billion Qatari deposit.

The volatility followed an announcement earlier this month by the central bank governor that he would eliminate the black market within six to 12 months. (Reporting By Stephen Kalin and Lin Noueihed; Editing by Larry King)

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