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Egypt downgraded by S&P
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CBC News
Standard & Poor's further cut the Egyptian government's credit ratings below investment grade Thursday, on the likelihood that political and economic unrest there will increase.
The bond rating service cut the country’s long-term foreign and local currency sovereign ratings to B+ from BB-, with a negative outlook.
Another ratings agency, Moody's Investors Service, last month also cut its ratings for Egypt, citing the ongoing political challenges and the weak economy.
The move came as Egypt's military rulers insisted parliamentary elections next week will proceed on schedule despite spreading protests.
Egypt’s economy is reeling from nine months of protests and strikes against the ruling military council. The protestors demand that the military rulers step aside and transfer power to a national salvation government.
The downgrade came as the government paid an average of 14.6 per cent to borrow money for six months.
The average yield at a government bill auction was up from just under 14 per cent last week.
Central bank hikes rates
The price of 12-month borrowing rose one percentage point, to 14.9 per cent.
And the government was able to raise only 40 per cent of the $960 million it wanted to.
Most of the lending is done by local banks, which have nearly reached the maximum they can lend to help the government cover its budget deficit, which has grown after higher spending in the wake of political unrest in the spring.
S&P also cited the drop in the country's net international reserves, which fell from $36 billion US at the end of December to $22 billion by the end of October as the country’s central bank moved to prop up the Egyptian pound.
And the central bank moved again Thursday to defend the pound, raising its benchmark interest rates to try to stem the selloff.
In the first increase since the fall of 2008, the bank raised its overnight deposit rate by a point to 9.25 per cent and its overnight lending rate by half a point to 10.25 per cent.
The unrest has cut deeply into Egypt’s economy. A few years ago, it had growth rates of seven per cent. The International Monetary Fund predicts growth of just one per cent this year.
The stock market's benchmark index has shed almost 48 per cent since the start of the year, losing around $33.5 billion and earning the dubious distinction of being among the worst performing in the world after Greece and Cyprus.
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