Excerpt from Central Bank of Egypt' press release:
The cumulative monthly increase in headline CPI inched up by only 2.2 percent in Q2 of 2013, after increasing by around 5 percent in Q1. Similarly, the cumulative monthly increase in core CPI registered 1.7 percent in Q2 compared to 4.7 percent in the previous quarter. The latest monthly developments in both headline and core inflation were largely driven by increases in several food prices.
Upside risks to the inflation outlook have moderated as the possibility of a rebound in international food prices is unlikely in light of recent global developments.
Meanwhile, real GDP grew by 2.3 percent in the first nine months of 2012/2013, following a similarly feeble growth rate of 2.2 percent in 2011/2012. This nascent recovery in economic activity came on the back of tentative signs of recovery in the construction and tourism sectors. Nonetheless, GDP growth remains to be partly suppressed by continuing weaknesses, albeit of lesser extent, in the manufacturing sector. 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, the current political transformation may continue to have ramifications on both consumption as well as investment decisions, adversely weighing on key sectors within the economy.
These factors, combined, pose downside risks to domestic GDP going forward. The pronounced downside risks to domestic GDP combined with the persistently negative output gap since 2011 will limit upside risks to the inflation outlook going forward. Given that the downside risks to the GDP outlook outweigh the upside risks to the inflation outlook, the MPC decided to cut the key CBE rates.
The Monetary Policy Committee decided to cut the overnight deposit rate, overnight lending rate, and the rate of the CBE's main operation by 50 basis points to 9.25 percent, 10.25 percent, and 9.75 percent, respectively. The discount rate was also cut by 50 basis points to 9.75 percent.