Egypt’s central bank kept its overnight deposit and lending rates unchanged, saying economic growth remained feeble and warning that local supply bottlenecks and a recent outbreak of foot and mouth disease could speed up inflation.
The rates decision was in line with expectations after inflation increased only mildly in February and following a cut in the reserve requirement on deposits to help spur growth.
Headline inflation accelerated to 9.2 per cent year-on-year in February from 8.6 per cent in January. The bank’s Monetary Policy Committee (MPC) warned that inflation might quicken even though non-food prices were tame and international food prices were now less likely to rebound.
“The repercussions of the outbreak of the foot and mouth disease along with the re-emergence of local supply bottlenecks and distortions in the distribution channels pose upside risks to the inflation outlook,” it said in a statement accompanying its decision.
Egypt has had 40,222 suspected cases of a dangerous new strain of foot and mouth disease, and 4,658 animals, mostly calves, have already died, the United Nations’ Food and Agriculture Organisation (FAO) said on Thursday. The central bank also said the effect of Egypt’s political troubles on consumption and investment could continue to hurt growth.
“Moreover, downside risks continue to surround the global recovery on the back of challenges facing the Euro Area. These factors, combined, pose downside risks to domestic GDP going forward,” the MPC statement said.
On on Tuesday, Egypt’s central bank cut its reserve requirement on local currency deposits to 12 per cent from 14 per cent, a move analysts said would free up funds sitting idle at the central bank and supply banks with more cash to lend, both to the government and to business.
The bank’s Monetary Policy Committee kept its benchmark lending rate steady at 10.25 per cent and the deposit rate at 9.25 per cent after its regular meeting, it said on its website.
All five economists in a Reuters survey had forecast that the meeting would hold overnight rates unchanged. The bank also left the discount rate unchanged at 9.5 per cent. The International Monetary Fund wants measures attached to a potential loan to Egypt to have “broad political support,” a spokesman for the fund said.
A team just visited the country “to lay groundwork for the return of the technical team that can continue work on Egypt’s economic program,” spokesman David Hawley told reporters in Washington today.