Central Bank of Egypt Cuts Rates

The Monetary Policy Committee of the Central Bank of Egypt decided on September 19th to cut the overnight deposit rate by 50 bps to 8.75 percent. It is the second consecutive cut, amid risks to GDP growth and moderate inflationary pressures.

Excerpt from Central Bank of Egypt' press release:

Headline CPI inched up by 0.68 percent (m/m) in August compared to an increase of 0.86 percentin July. The annual rate declined to 9.75 percent from 10.28 percentin July due to a favorable base effect. Upside risks to the inflation outlook have moderated as the possibility of a rebound in international food prices is unlikely in light of recent global developments.

Meanwhile,real GDP grew by 2.3 percent in the first nine months of 2012/2013, following a similarly feeble growth rate of 2.2 percent in 2011/2012. This nascent recovery in economic activity came on the back of tentative signs of recovery in the construction and tourism sectors. Nonetheless, GDP growth remains to be partly suppressed by continuing weaknesses, albeit of lesser extent, in the manufacturing sector. In the meantime, investment levels remained low given the heightened uncertainty that faced market participants since early 2011 and the weak credit growth to the private sector. Moreover, downside risks continue to surround the global recovery on the back of challenges facing the Euro Area and the softening growth in emerging markets. These factors pose downside risks to domestic GDP going forward.

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. Given that the downside risks to the GDP outlook still outweigh the upside risks to the inflation outlook, the MPC decided to further cut the key CBE rates.

Central Bank of Egypt Cuts Rates

Central Bank of Egypt | Joana Taborda | joana.taborda@tradingeconomics.com
9/19/2013 6:25:20 PM