CAIRO: The Egyptian central bank yesterday raised key overnight interest rates for the third time this year to contain inflation expectations after recent government decisions to raise the prices of fuel and cigarettes.

The bank's monetary policy committee said it decided at its meeting to lift its overnight deposit rate and lending rate by 50 basis points to 10pc and 12pc respectively.

It raised the rates by 50 basis points in March and by 25 bps in February.

"Despite tentative signs of moderation in international wheat prices, the domestic inflation outlook is affected by the latest regulated price adjustments," the bank said.

Egypt's parliament approved steep increases in fuel and cigarette prices and vehicle licence fees to cover the costs of public-sector pay increases that President Hosni Mubarak proposed last week.

The central bank said the immediate one-off effect of the price rises and their the consequent second round effect pose an upside risk to inflation prospects.

Urban inflation in Egypt rose to 16.4 per cent in the year to last month, from 14.4pc in the year to March, the state statistics agency CAPMAS said. It was the highest since December 2004.

Analysts expect the new government measures to push up inflation to at least 20pc in the next few months as the effect of the fuel price increases ripples through the economy.

The central bank said it will continue to monitor economic developments closely.