The Central Bank of Egypt (CBE), which raised rates in April fend off inflation, said slower economic growth was limiting the upside risks to inflation but pressures remain and warned that it "will not hesitate to adjust the key CBE rates to ensure price stability over the medium-term."
"While the probability of a rebound in international food prices is less likely in light of recent global developments, the re-emergence of local supply bottlenecks and distortions in the distribution channels pose upside risks to the inflation outlook" the CBE said.
Egypt's headline inflation rate rose to 8.2 percent in May from 8.1 percent the previous month while annual core inflation rose to 8.04 percent from 8.11 percent given unfavorable base effects.
The CBE said there were tentative signs of a recovery in economic activity in the construction and tourism sectors, but overall growth remains suppressed by weakness in manufacturing.
"Moreover, downside risks continue to surround the global recovery on the back of challenges facing the euro area and the softening growth in emerging markets. These factors, combined, pose downside risks to domestic GDP going forward," the CBE added.