Egypt's central bank, which earlier today cut its key interest rates for the third time in a row, said there are limited risks to higher inflation in the future due to "the pronounced downside risks to domestic GDP combined with the persistently negative output gap since 2011."
The Central Bank of Egypt (CBE), which cut its benchmark overnight deposit rate by another 50 basis points to 8.25 percent for a total reduction this year of 100 points, stressed the downside risks to Egypt's economy from the challenges facing the euro area and softening growth in emerging markets.
"Given that the downside risks to the GDP outlook outweigh the upside risks to the inflation outlook, the MPC decided to cut they key CBE rates," the central bank said.
Egypt's headline inflation rate rose to 10.4 percent in October from September's 10.15 percent, driven by higher prices of domestic food due to supply bottlenecks in the distribution channel despite lower international food prices, in addition to the effects of the Eid festivities.
The central bank cautioned that inflation could even rise further in November and December despite the expected seasonal slowdown in monthly rates and an unlikely rise in international food prices.
Egypt's economy, which has been affected by political instability since the overthrow of President Hosni Mubarak in 2011, was sluggish in the 2012/13 financial year, which ended June 30, on the back of a contraction in the petroleum sector and modest growth in manufacturing, construction and tourism.
"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," the bank said.
Egypt's Gross Domestic Product rose by an annual 1.5 percent in the second calendar quarter, down from 2.2 percent in the first quarter.
The economy expanded by 2.1 percent in the 2012/13 fiscal year, slightly less than 2.2 percent in 2011/12, the central bank said.