CAIRO: Egypt’s central bank left its benchmark overnight deposit and lending rates unchanged on Thursday, saying economic growth remained feeble yet warning that local supply bottlenecks could cause inflation to speed up.
Some economists had expected the central bank to increase rates to dampen accelerating inflation and attract funds to the country’s financial system.
Headline inflation crept up to 9.5 percent in December from October’s four-year low of 7.1 percent, and the central bank has used up half its foreign reserves to defend the Egyptian pound during the political and economic turmoil of the last year.
Borrowing by the government to finance a burgeoning budget deficit has pushed up the yield on 364-day treasury bills to almost 16 percent from less than 10.5 percent before the popular uprising that unseated Hosni Mubarak.
The central bank’s Monetary Policy Committee (MPC) said the economy had grown by only 0.4 percent in the second quarter of 2011 and 0.3 percent in the third quarter, and that problems in the Eurozone and continuing political uncertainty in Egypt could "pose a downside risk to domestic GDP going forward."
The MPC also warned of inflation risks in its statement accompanying the rates decision.
"The re-emergence of local supply bottlenecks and distortions in the distribution channels pose an upside risk to the inflation outlook," the MPC said.
In a Reuters survey, seven of 12 economists had forecast that the bank’s monetary policy committee would hold overnight rates unchanged. The other five predicted increases ranging from 25 to 125 basis points.
The MPC kept the central bank’s key lending rate steady at 10.25 percent and the deposit rate at 9.25 percent. It also left the discount rate unchanged at 9.5 percent.
"Given the balance of risks surrounding the inflation and GDP outlooks and the uncertainty at this juncture, the MPC judges that the current key CBE (Central Bank of Egypt) rates are appropriate," the MPC statement said.
At its last meeting on Nov. 24, the committee unexpectedly raised rates for the first time in more than two years.