CBE Kept Interest Rates Unchanged On Low GDP, Retreating Investment Rates

The Central Bank of Egypt’s (CBE) Monetary Policy Committee has left overnight deposit and lending rates unchanged at 9.75% and 10.75% respectively, as well as repo rates at 10.25% and credit and discount rates at 10.25% during its meeting last Thursday because investment rate in the Egyptian market are still low and political turmoil in Egypt and the Arab world continues to affect consumption and investment decisions, adversely weighing on key economic sectors.

MPC revealed in a statement that tentative signs of recovery in the construction and tourism sectors have led real GDP to grow by 2.4% in the first half of FY 2012/2013, following a similarly feeble growth rate of 2.2% in FY 2011/2012. However, GDP growth remains to be partly surpassed by continuing weakness in the manufacturing sector because of the heightened uncertainty that faced market participants since early 2011.

The Committee noted that downsize continue to surround the global recovery on the back of challenges facing the Euro zone, posing downside risks to GDP growth.

Headline CPI registered a month-over-month increase of 1.47% in April and 0.64% in March, pushing the annual rate to 8.11% in April from 7.59% in March. On the other hand, core CPI witnessed a month-over-month of 0.97% in April, compared to 0.51% in March, bringing the annual rate to 7.47% in April from 7.03% in March. However, these rates did not enable MPC to raise interest rates because of other pressures related to investment and growth rates.