Thursday, May 29, 2014

Egypt holds rate, repeats limited upside inflation risks

    Egypt's central bank maintained it policy rates and repeated that downside risks to economic growth will limit upside risks to inflation going forward and the bank "will not hesitate to adjust the key CBE rates to ensure price stability over the medium-term."
    The Central Bank of Egypt (CBE) has maintained its benchmark overnight deposit rate at 8.25 percent this year after cutting it by 100 basis points last year. In April the CBE also said downside risks to the economy would limit future inflation.
    Economists were split in their view of whether the CBE would cut rates today after former-army chief Abdel Fattah al-Sisi took more than 90 percent of the vote in the presidential election, according to a preliminary count. Al-Sisi toppled President Mohamed Morsi in a popular coup last July.
    Egypt's headline inflation rate eased to 8.87 percent inflation in April, down from 9.82 percent in March, and the lowest in six months. Core inflation eased to 9.11 percent from March's 9.90 percent.
    Although CBE said the decline was helped by favorable base effects, it added that inflation this year has been driven by higher food prices and April was the first month with muted prices.
    "Upside risks to the inflation outlook continue to be contained as the possibility of a sharp rebounding international food prices is unlikely in light of recent global developments," CBE said.
    Egypt's economy has been hard hit since the political uprising in 2011 and the CBE repeated that the challenges facing the euro area and softening growth in emerging markets could pose downside risks to the country's economy.
    Egypt's Gross Domestic Product expanded by "a feeble" 1.2 percent in the first half of the current 2013/14 financial year, which ended December, compared with 2.1 percent in 2012/13, CBE said.
    In the first calendar quarter, Egypt's GDP expanded by an annual 1.0 percent, down from the fourth quarter growth rate of 1.4 percent.
    Unemployment remained unchanged at 13.4 percent in the first quarter, with 3.7 million unemployed, of which 70 percent are young.
    The CBE said investment levels remain low given the heightened uncertainty since early 2011 and weak credit growth to the private sector.


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