VZCZCXYZ0000
PP RUEHWEB

DE RUEHEG #2062 2651414
ZNR UUUUU ZZH
P 211414Z SEP 08
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC PRIORITY 0517
INFO RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

UNCLAS CAIRO 002062 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR NEA/ELA 
TREASURY FOR BEN DENNIS AND CHARLES MORAVEC 
COMMERCE FOR TOM SAMS AND NATE MASON 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV PGOV EG
SUBJECT: INFLATION STILL A WORRY FOR THE EGYPTIAN CENTRAL 
BANK 
 
¶1. (U) Summary: The Central Bank of Egypt (CBE) raised key 
lending and deposit rates by 50 basis points on September 18. 
Year-on-year inflation was 25.5% in August, and the latest 
move by the CBE reflects its worries over continued 
inflationary pressure on the economy, even as it noted that 
food price increases appear to be slowing. Ramadan price 
increases along with increases in educational fees are 
expected to lead to another month of rising inflation in 
September. Local analysts expect inflation to slow from the 
fourth quarter into 2009. End Summary. 
 
¶2. (U) On September 18, the Monetary Policy Committee of the 
Central Bank of Egypt (CBE) raised key overnight lending and 
deposit rates by 50 basis points to 13.5% and 11.5% 
respectively. The CBE also raised the discount rate by 50 
basis points to 11.5%.  The latest rate hikes mark the sixth 
time this year the CBE has raised rates, for a total increase 
of 275 basis points since January. 
 
¶3. (U) The CBE action comes a week after the GOE released 
August inflation figures which showed yet another marked 
increase in the CPI. The official Egyptian government 
statistical agency, CAPMAS, reported a year-on-year CPI 
increase of 25.5% in August, compared to 23.1% in July. Food 
inflation, though increasing at a slower rate than in 
previous months, was a significant contributor to the 
increase. (Note: Food prices, in particular, tend to rise 
during Ramadan and the weeks leading up to it. Ramadan began 
on September 1. End note.) 
 
¶4. (U) In its statement, the CBE noted that prices had risen 
more slowly for basic food products as a result of lower 
international commodity prices, the temporary ban on rice 
exports imposed in the spring, and removal of certain food 
import tariffs, though it noted that retail prices tended to 
be rigid and had not yet reflected lower costs. The CBE said 
that non-food inflation continues to be high. 
 
¶5. (SBU) Comment: The next meeting of the Monetary Policy 
Committee of the CBE will be November 6.  Local economists 
suggest further rate hikes may be in the cards. The 
government is expected to report an additional increase when 
it reports September's CPI as further increases in food 
prices along with higher prices of education fees and butane 
gas (used in home heating and cooking) are reflected. 
Inflationary pressures are expected to ease in the fourth 
quarter of 2008 and the first quarter of 2009, which should 
bring an end to this phase of central bank tightening. 
Analysts expect inflation for 2008 to average 20%. 
SCOBEY