Egypt: Central Bank keeps rates unchanged amid persistently high inflation
July 30, 2015
At its 30 July 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 fourth 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 a solid 4.3% annually in the October-December period (the second quarter of fiscal year 2014-2015). The Bank explained that growth was driven by increases in the manufacturing and tourism sectors, which offset weakness in the resource extraction industry. The statement did not make reference to the slower 3.0% growth in the January-March period as reported recently by the Ministry of Planning. 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 and softening growth in emerging markets presents downside risks to the domestic outlook
In terms of price developments, inflation decreased from 13.1% in May to 11.4% in June, due in part to a base effect from last year. Despite the moderation, inflation is still considerably higher than before the government cut subsidies last summer. Meanwhile, annual core inflation was broadly stable in June at May’s 8.1%. The CBE added that the risk of inflationary pressures due to domestic supply issues are mitigated by contained inflation of imported goods.
The Bank judged that keeping its rate unchanged was, “appropriate given the balance of risks surrounding the inflation and GDP outlooks.”
Author: Carl Kelly, Economist