Egypt Leaves Benchmark Rate on Hold at 8.25%

At its May 29th, 2014 meeting, Egypt's Central Bank decided to hold the overnight deposit rate steady at 8.25 percent, as policymakers consider downside risks to GDP will limit inflationary pressures.
Central Bank of Egypt | Isabel Felino | 5/29/2014 5:44:19 PM
The overnight lending rate was also kept at 9.25 percent, while the rate of CBE's main operation remained unchanged at 8.75 percent. The discount rate was also kept unchanged at 8.75 percent.

Excerpts from the statement by the Central Bank of Egypt:

While monthly developments in headline inflation have been largely driven by higher prices of several food items since the beginning of 2014, April marks the first month during which food prices have been relatively muted. Upside risks to the inflation outlook continue to be contained as the possibility of a sharp rebound in international food prices is unlikely in light of recent global developments.

Meanwhile, real GDP picked up slightly in 2013/2014 Q2, growing by 1.4 percent compared to the 1.04 percent recorded in the quarter ending September 2013. This brought the annual growth for the first half of 2013/2014 to a feeble 1.2 percent compared to the growth rate of 2.1 percent recorded in 2012/2013. Economic activity remained sluggish in 2013/2014 Q2 on the back of modest growth rates in most of the key sectors, namely manufacturing and construction in addition to the contraction in the tourism and petroleum sectors. In the meantime, investment levels remained low given the heightened uncertainty that faced market participants since early 2011 and the weak credit growth to the private sector Looking ahead, downside risks that surround the global recovery on the back of challenges facing the Euro Area and the softening growth in emerging markets could pose downside risks to domestic GDP going forward.

The downside risks to domestic GDP combined with the negative output gap since 2011 will limit upside risks to the inflation outlook going forward. Given the mixed balance of risks surrounding the inflation and the GDP outlooks at this juncture, MPC judges that the current key CBE rates are appropriate.

Egypt Leaves Benchmark Rate on Hold at 8.25%