Thursday, August 1, 2013

Egypt cuts rate 50 bps, growth risks outweigh inflation risk

    Egypt's central bank cut its overnight deposit rate by 50 basis point to 9.25 percent, along with its other rates by the same amount, saying the downside risks to economic growth were outweighing the upside risks to inflation.
    The Central Bank of Egypt (CBE), which last raised rates in March to fend off inflationary pressures, added that it would closely monitor all economic developments and "will not hesitate to adjust the key CBE rates to ensure price stability over the medium-term."
    Egypt's headline inflation rate rose to an annual rate of 9.75 percent in June from 8.2 percent in May, mainly due to increases in food prices.
    But the bank said upside risks to inflation had moderated as the possibility of a rebound in international food prices was unlikely in light of recent global developments.
    Economic growth in Egypt has been hard hit by continued political unrest but Gross Domestic Product still expanded by an annual 2.2 percent in the first quarter, unchanged from the fourth.
    But the central bank said investment levels have remained low given the heightened uncertainty and "the current political transformation may continue to have ramifications on both consumption as well as investment decisions," along with risk to the global recovery.
    "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," the bank said.  


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