Monetary Policy Committee (MPC) of Egypt’s central bank kept the overnight deposit rate, overnight lending rate as well as CBE’s main operation rate unchanged at 8.25%, 9.25% and 8.75%, respectively. The discount rate was also kept unchanged at 8.75%. The MPC reasoned that annual headline Consumer Price Index (CPI) eased to 11.66% in December from 12.97% in November with price inflation largely driven by higher prices of several food items and a number of non-food items.

Moreover, the MPC saw a broadly unchanged annual core CPI at 11.91% in December on the back of favorable base effects from last year coupled with a stable forecast for international food prices moderating upside risks to inflation over the next few months.

MPC’s decision was reinforced by sluggish economic growth in Q1 (July-September) of FY 2013/2014 with real GDP growing by an annualized 1.04% on the back of modest growth rates in key sectors such as manufacturing and construction, whereas, other sectors such as tourism and petroleum actually contracted during the first quarter of FY 2013/2014. In addition, low investment levels and weak credit growth to the private sector in Egypt coupled with challenges facing economic recovery in the Euro area and softening growth in emerging markets lead the MPC to the view that they could pose downside risks to domestic GDP going forward.

Therefore the MPC concluded that its neutral stance on interest rates is justified given that “pronounced downside risks to domestic GDP combined with persistent output gap since 2011 will limit upside risks to the inflation outlook going forward.”