CAIRO, (Reuters) - Egyptian inflation fell for a second straight month in October as food and drink prices dropped, data showed on Monday, adding to expectations the central bank could cut interest ra...

CAIRO, (Reuters) - Egyptian inflation fell for a second straight month in October as food and drink prices dropped, data showed on Monday, adding to expectations the central bank could cut interest rates this year.   Yearly inflation in the most populous Arab country fell to 21.2 percent in October, from 22.2 percent in September, after prices for food and drink fell 1.7 percent in a single month, the state statistics agency CAPMAS said.   Prices overall fell 0.2 percent in the month to October, the first monthly decline since November 2007, according to data on the CAPMAS website (www.capmas.gov.eg).   Declining inflation could encourage the central bank to cut benchmark rates, either at its next meeting or early in 2009, said Mohamed Abu Basha, economist at investment bank EFG-Hermes.   "They wanted to see more evidence inflation was decelerating and now we have inflation decelerating for the second month in a row," he said. "The shift is now moving away from inflation towards worries about economic growth because of what is happening in the world."   Food prices, the main driver of double-digit inflation of the past 10 months, are still 26.7 percent higher than they were a year ago, CAPMAS said. Rising prices led to street protests in Egypt this year.   MOST PRICES RISE   Other than food, drink and tobacco, all other categories of goods and services continued to rise in price, especially education, restaurants and hotels, CAPMAS said.   The urban inflation rate -- previously the benchmark as it was the only figure released monthly -- fell to 20.2 percent from 21.5 percent in September, it said.   The rural inflation rate dropped to 22.5 percent, from 23.1 percent in September, it added. Cairo-based investment bank Beltone said the decline showed the bias of the consumer price index towards food and beverages, which constitute 44 percent of the index, effectively diluting the increase in prices of other items. "We believe inflation will continue to decline at a slower pace as the effect of lower international food prices is counterbalanced by the increase in food prices in the lead up to the religious holiday season in ... December," it added.   "We expect inflation will end the year (at) around 19 percent, depending on the effect of the latter factors."   International food prices hit nine-month lows in September and have since fallen further. Egypt is among the world's largest importers of wheat. The government has said inflation should fall to about 12 or 13 percent by the end of the financial year in June.   The central bank monetary policy committee last week ended a nine-month cycle of interest rate hikes, leaving its overnight deposit rate at 11.5 percent and signalling that it might cut rates in future to stimulate growth.