Egypt: Central Bank keeps rates unchanged amid strong growth and rising inflation
June 11, 2015
At its 11 June monetary policy meeting, the Central Bank of Egypt (CBE) decided to maintain the overnight deposit rate unchanged at 8.75%. The decision met market expectations and marked the third 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 2015). The Bank explained that growth was driven by increases in the manufacturing and tourism sectors, which offset weakness in the resource extraction industry. Going forward, public investment in large infrastructure projects such as the Suez Canal is expected to contribute to growth. However, the Bank acknowledged that the weak global economic recovery and softening growth in emerging markets present downside risks to the domestic outlook
In terms of price developments, inflation accelerated from 11.0% in April to 13.1% in May, due in part to a base effect from last year. The Bank explained that a sustained rise in the price for food items has contributed to inflationary pressures in recent months and, “widened the divergence between headline and core inflation rates.” Annual core inflation increased from 7.2% in April to 8.1% in May. The CBE added that the risk of inflationary pressures due to domestic supply issues are mitigated by contained imported inflation.
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