Egypt: Central Bank keeps rates unchanged amid global risks
September 17, 2015
At its 17 September monetary policy meeting, the Central Bank of Egypt (CBE) decided to maintain the overnight deposit rate at 8.75%. The decision met market expectations and marked the fifth consecutive meeting at which the Bank kept rates on hold. The Bank also kept its overnight lending rate and main operation rate unchanged at 9.75% and 9.25%, respectively.
In its accompanying statement, the CBE emphasized that the economy grew 3.0% annually in the January-March period (the third quarter of fiscal year 2014-2015). The result was down from the 4.3% annual growth tallied in the previous quarter. The Bank explained that growth was driven by increases in internal trade, construction, building and the real estate sector, which offset weakness in the resource extraction industry. Going forward, the Bank expects public investment in large infrastructure projects to contribute to growth. However, the Bank acknowledged that the weak global economic recovery, softening growth in emerging markets and political challenges in Europe present downside risks to the domestic outlook.
In terms of price developments, inflation decreased from 8.4% in July to 7.9% in August, due in part to a base effect from last year. Inflation is now more line with the levels seen before the government cut subsidies last summer. Meanwhile, core inflation fell from 6.5% in July to 5.6% in August. The CBE added that the risk of inflationary pressures due to domestic supply issues are mitigated by contained inflation of imported goods amid low global commodity prices.
The Bank judged that keeping its rate unchanged was, “appropriate given the balance of risks surrounding the inflation and GDP outlooks.” The Bank’s next monetary policy meeting is scheduled for 29 October.
Author: Carl Kelly, Economist