CBE Fixated Interest Rates On Modest GDP Growth, Declining Inflation

The Central Bank of Egypt’s (CBE) Monetary Policy Committee has kept overnight deposit and lending rates unchanged at 9.25% and 10.25% respectively for the seventh consecutive time in its meeting last Thursday because inflation rates continued to decline and GDP are still posting modest growth rates.

The annual general inflation rate fell to 6.22% in September, compared to 6.47%% in August, despite a monthly increase of 1.20% in September, buoyed by the base period a year earlier. The monthly increase was a result of the increase in the fresh vegetables prices which limited the influence of reduced prices that are witnessed by some food products. In addition, the core annual inflation rate retreated to 6.34% in July, down from 7.04% in June as a result of a drop in some food prices.

The core monthly inflation rate registered a negative rate of 0.31% due to the fall in the prices of some food products as well as the limited changes witnessed by non-food goods. The core annual inflation rate dropped to 3.84% in September, compared to 5.34% in August, supported by the base period a year earlier.

The Monetary Policy Committee warned that if global food prices continue to rise, inflation risks will increase.

Leaving deposit and lending rates unchanged was also a result of the modest GDP growth rates which stood at 2.2% in FY 2011/2012, compared to 1.8% in FY 2010/2011. Low economic activity in industry and tourism has dampened recovery of construction and building sectors which in return affected negatively growth of GDP. Moreover, investors have been uncertain about the Egyptian market since the beginning of 2012, bringing investment rates down.

The political and economic changes in Egypt and the Arab countries as well as the continuous deterioration of the global economy may continue to affect the investment and consumer decisions, the Committee warned.