Thursday, October 31, 2013

Egypt maintains rates, downside risks to limit inflation

    Egypt's central bank held its benchmark overnight deposit rate steady at 8.75 percent, as expected, saying the current rates were appropriate as the downside risks to economic growth combined with the persistently negative output gap since 2011 would limit the upside risks to inflation.
    The Central Bank of Egypt (CBE), which cut rates in August and September, said the downside risk to global recovery stem from the challenges facing the euro area and softening growth in emerging markets and it would "not hesitate to adjust the key CBE rates to ensure price stability over the medium term."
    The central bank raised its rates by 50 basis points in March, but then cut by a combined 100 points in the previous two months, resulting in a net reduction this year of 50 points.
    Egypt's headline inflation rate rose to 10.15 percent in September from 9.74 percent in August, but some of the rise was due to the Haj season and the beginning of the school year.
    Inflation is projected to continue to be affected by seasonal events, such as the Eid festivities and the school year, but "upside risks to the inflation outlook continue to moderate as the possibility of a rebound in international food prices is unlikely in light of recent global developments," CBE said.

    Egypt's economy, hit by political unrest since the overthrow of former  President Hosni Mubarak in 2011, expanded by an annual rate of 1.5 percent in the second quarter, down from 2.2 percent in the first quarter.
    The CBE said investment levels remain low given the heightened uncertainty since early 2011 and the weak credit growth to the private sector.



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