The Central Bank of Egypt (CBE) has held rates steady since surprising markets in January by cutting its rate by 50 basis points despite accelerating inflation.
In May Egypt's headline inflation rate rose further to 13.19 percent from 10.96 percent in April, partly due to an unfavorable comparison with last year. Last July the government cut fuel subsidies, triggering a jump in fuel prices and inflation. Administered prices on tobacco have also been raised.
Core inflation, as computed by the central bank, rose to 8.14 percent in May from 7.19 percent in April, with the rise in food accounting for the divergence between headline and core inflation rates, the CBE said.
After slumping in 2011 following political and social unrest, Egypt's economy has started to rebound with Gross Domestic Product expanding by an annual 4.3 percent in the fourth quarter of last year, or the second quarter of Egypt's fiscal 2014/15, helped by stronger manufacturing and an expansion of tourism for the second quarter in a row.
For the first half of 2014/15 growth was up by a record 5.6 percent, the CBE said, compared with growth of 2.2 percent in 2013/14.
"In the meantime, while the widening trade deficit is stalling real GDP growth, investment remains positive for the fourth consecutive quarter," the CBE said.
In the first nine months of 2014/15, which began July 1 last year, Egypt's trade deficit widened by 22.7 percent to US$29.6 billion from $24.1 billion due to a 14 percent fall in merchandise exports linked to lower oil prices. Export of crude oil makes up 71.5 percent of total oil exports and 28.4 percent of merchandise exports, according to the CBE.
As in April, the CBE said investments in mega projects, such as the Suez Canal, are expected to contribute to economic growth, but challenges facing the euro area and softer growth in emerging markets could pose downside risks to growth.
The Central Bank of Egypt issued the following statement:
"In its meeting held on June 11, 2015, the Monetary Policy Committee (MPC) decided to keep
the overnight deposit rate, overnight lending rate, and the rate of the CBE's main operation
unchanged at 8.75 percent, 9.75 percent, and 9.25 percent, respectively. The discount rate
was also kept unchanged at 9.25 percent.
Headline CPI increased by 1.91 percent in May compared to an increase of 0.19 percent in April. The annual rate accelerated to 13.19 percent in May from 10.96 percent in April, partly due to the unfavorable base effect from last year. On the other hand, core CPI increased by 0.65 percent in May compared to 0.23 percent in April, while the annual rate inched up to 8.14 percent in May after registering 7.91 percent in April. The continued increase in the prices of volatile food items explain the bulk of monthly headline CPI developments and has widened the divergence between the headline and core inflation rates. Upside risks on the inflation outlook from domestic supply shocks are largely mitigated by contained imported inflation, against the background of lower oil prices and the consequent revision in international food price forecasts.
Meanwhile, real GDP grew by 4.3 percent (y/y) in 2014/15 Q2 to record 5.6 percent (y/y) in the first half of the fiscal year, supported by the record growth witnessed in the first quarter. This comes after the 2013/14 fiscal year real GDP growth recorded 2.2 percent (y/y). The expansion in economic activity during 2014/2015 Q2 came on the back of the continued growth in the manufacturing sector and the expansion of tourism activities for the second consecutive quarter after several quarters of contraction. This came despite the continuous weakness in the extraction sector. In the meantime, while the widening trade deficit is stalling real GDP growth, investment remained positive for the fourth consecutive quarter. Looking ahead, while investments in domestic mega projects such as the Suez Canal are expected to contribute to economic growth, the downside risks that surround the global recovery on the back of challenges facing the Euro Area and the softening growth in emerging markets could pose downside risks to domestic GDP.
At this juncture, the MPC judges that the key CBE rates are currently appropriate given the balance of risks surrounding the inflation and GDP outlooks.
The MPC will continue to closely monitor all economic developments and will not hesitate to adjust the key CBE rates to ensure price stability over the medium-term."
www.CentralBankNews.info
Headline CPI increased by 1.91 percent in May compared to an increase of 0.19 percent in April. The annual rate accelerated to 13.19 percent in May from 10.96 percent in April, partly due to the unfavorable base effect from last year. On the other hand, core CPI increased by 0.65 percent in May compared to 0.23 percent in April, while the annual rate inched up to 8.14 percent in May after registering 7.91 percent in April. The continued increase in the prices of volatile food items explain the bulk of monthly headline CPI developments and has widened the divergence between the headline and core inflation rates. Upside risks on the inflation outlook from domestic supply shocks are largely mitigated by contained imported inflation, against the background of lower oil prices and the consequent revision in international food price forecasts.
Meanwhile, real GDP grew by 4.3 percent (y/y) in 2014/15 Q2 to record 5.6 percent (y/y) in the first half of the fiscal year, supported by the record growth witnessed in the first quarter. This comes after the 2013/14 fiscal year real GDP growth recorded 2.2 percent (y/y). The expansion in economic activity during 2014/2015 Q2 came on the back of the continued growth in the manufacturing sector and the expansion of tourism activities for the second consecutive quarter after several quarters of contraction. This came despite the continuous weakness in the extraction sector. In the meantime, while the widening trade deficit is stalling real GDP growth, investment remained positive for the fourth consecutive quarter. Looking ahead, while investments in domestic mega projects such as the Suez Canal are expected to contribute to economic growth, the downside risks that surround the global recovery on the back of challenges facing the Euro Area and the softening growth in emerging markets could pose downside risks to domestic GDP.
At this juncture, the MPC judges that the key CBE rates are currently appropriate given the balance of risks surrounding the inflation and GDP outlooks.
The MPC will continue to closely monitor all economic developments and will not hesitate to adjust the key CBE rates to ensure price stability over the medium-term."
www.CentralBankNews.info
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