UPDATE 2-Egypt central bank keeps key interest rates on hold

Thu Feb 27, 2014 11:35am EST

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CAIRO Feb 27 (Reuters) - Egypt's central bank left official interest rates on hold on Thursday, as it tries to stimulate an economy hurt by three years of political turmoil while keeping inflation in check.

Economic growth in the Arab world's most populous nation has slowed markedly and many foreign tourists and investors have shied away from Egypt since the uprising that toppled autocrat Hosni Mubarak in 2011.

Egypt's interim government, installed by the army after Islamist President Mohamed Mursi was forced from office in July, unexpectedly resigned on Monday, but many ministers have been reappointed since then.

Presidential and parliamentary elections are due to be held within months.

The bank said its monetary policy committee (MPC) left the overnight deposit rate unchanged at 8.25 percent and its overnight lending rate at 9.25 percent.

It also kept its discount rate and the rate it uses to price one-week repurchase and deposit operations at 8.75 percent, the bank said in a statement.

Egypt's annual urban inflation rate slowed to 11.4 percent in January from 11.7 percent in December. Core annual inflation slid to 11.7 percent in January from 11.9 percent in December.

The economy grew a meagre 2.1 percent last fiscal year, which ended on June 30. Gross domestic product (GDP) for the first quarter of this fiscal year, the three months through Sept. 30, grew just 1.04 percent.

"The pronounced downside risks to domestic GDP combined with the persistently negative output gap since 2011 will limit upside risks to the inflation outlook going forward," the bank said, repeating the wording of its last statement.

"As upside risks to the inflation outlook continue to moderate as the possibility of a rebound in international food prices is unlikely in light of recent global developments, annual inflation is projected to ease from their current levels in the coming months."

Five of six economists surveyed by Reuters had expected the bank to keep rates unchanged on Thursday. One expected a cut of 50 basis points.

(Reporting by Shadia Nasralla; Editing by Catherine Evans)

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