The Central Bank of Egypt (CBE), which surprised economists by cutting its rate in December, also said it saw limited risks to inflation due to weak economic growth.
"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 CBE, which cut rates by 100 basis points in 2013, underscored its determination to boost economic growth despite inflationary pressures with its December rate cut.
Egypt's inflation rate eased to 11.7 percent in December from an almost-four-year high of 12.97 percent in November. Core inflation was steady at 11.91 percent from 11.95 percent in November.
The central bank said the economy continued to lose some its already weak momentum in the first quarter of 2013/14 financial year - the third calendar quarter - growing by an annual rate of 1.04 percent compared with "the feeble" growth rate of 2.1 percent in the same 2012/13 quarter.
Economic activity was sluggish in the first financial quarter, which began on July 1, on the back of modest growth in most sectors, including manufacturing and construction, along with a contraction in tourism and petroleum escorts. Investment levels also remain low given the uncertainty facing investors and weak credit growth to the private sector.
"Looking ahead, downside risks that surround the global recovery on the back of challenges facing the euro area and the softening growth in emerging markets could pose downside risks to the domestic GDP going forward," the CBE said.