Egypt's central bank held its benchmark overnight deposit rate steady at 9.75 percent to give its recent rate hike time to take effect, but warned that inflationary pressures may build and the bank's Monetary Policy Committee will not hesitate to raise rates to ensure price stability.
The Central Bank of Egypt (CBE), which raised its key lending rates by 25 basis points in April, said slow economic growth had checked the upside risks to inflation and a rebound in international food prices was not likely, but there is a "possible build-up of upward pressures on inflation going forward" due to local supply bottlenecks and distortions in distribution channels.
Egypt's headline inflation rate rose by a monthly 1.47 percent in April to an annual rate of 8.11 percent, up from 7.59 percent in March, while core inflation rose to 7.437 percent from 7.03 percent. Higher prices are due to broad-based increases in food and non-food prices.
Egypt's Gross Domestic Product expanded by a real 2.4 percent in the first half of the 2012/13 financial year, which ends June 30, following a "similarly feeble growth rate" of 2.2 percent in 2011/12, the bank said.
A "nascent" economic recovery was based on better construction and tourism activity, but manufacturing remains weak, investment low and the current political transformation is still weighing on consumption and investment decisions, the CBE said.
The central bank considers its current rates to be "appropriate given the lagged transmission of the previous rate hike across the economy combined with the mixed balance of risks surrounding the inflation and GDP outlooks at this juncture," the bank said adding that it "will not hesitate to adjust the key CBE rates to ensure price stability over the medium-term."
In April, when the CBE changed rates for the first time since November 2011, the central bank said it would not hesitate to adjust rates to ensure price stability.