Egypt's Central Bank is Robust, Policies Successful

Egypt's central bank is a robust institution whose recent success in stabilising the currency doesn't depend on a single member of staff, its sub-governor said on Wednesday. Speaking at a Cairo conference, Nidal Assar paid tribute to the tough decisions made over the tumultuous last 20 months by the bank's governor Farouk El-Oqda. El-Oqda's moves included intervening to defend the value of the Egyptian pound, which Assar said is now at a "comfortable" level, at around 6.09 to the dollar. But when challenged about what would happen should El-Oqda, who has held the post since 2004, eventually resign, Assar said that the bank was a "real institution" able to withstand even the departure of key staff. "Central Bank strategy has been consistent for the past eight years: to maintain an orderly market," he said. "Orderly means that investors do not have problems in liquidity nor in exiting the market." Assar cited the recent stabilisation of the country's reserves as proof the CBE is on the right track. "Just look at the September level," he said. "We didn't have any extraordinary foreign deposits, but reserves stabilised. This is a good sign."

The bank is ready to handle the problem of diminished reserves by relying on foreign funds until the arrival of a long-awaited IMF loan, Assar said. Egypt's foreign currency reserves have fallen by more than half to around $15 billion over the last year, with economists attributing the drop to the central bank's support for the pound. Assar denied, however, that the bank targeted any specific exchange rate or reserve level when it intervenes. He also downplayed suggestions that a much-rumoured rationalisation of Egypt's energy subsidies -- likely to cause increased fuel costs for some -- would not have a serious effect on inflation. Changes will not mean large price hikes for most of the Egyptian public he said, predicting a one-off effect on inflation that would soon be absorbed by the market.