(Adds Monetary Policy Committee statement, economists comments)
By Shadia Nasralla
CAIRO Dec 5 Egypt's central bank unexpectedly
cut its key interest rates by 50 basis points each at a monetary
policy committee (MPC) meeting on Thursday, saying it was more
concerned about boosting growth than taming inflation.
The economy has yet to recover from the popular uprising
that ousted Hosni Mubarak in 2011. Gross domestic product grew
just 2.1 percent in the year to June 30, too slow to make an
impact on youth unemployment, estimated at over 20 percent.
Urban consumer price inflation, meanwhile, hit 10.44 percent
in October - its highest since July 2011 and up from 10.15
percent in September.
"Given that the downside risks to the GDP outlook outweigh
the upside risks to the inflation outlook, the MPC decided to
cut the key CBE rates," the Central Bank of Egypt said in a
The bank cut its overnight deposit rate to 8.25 percent and
its overnight lending rate to 9.25 percent. It also cut its
discount rate and the rate it uses to price one-week repurchase
and deposit operations to 8.75 percent.
Seven economists polled by Reuters had expected the central
bank to leave its rates unchanged.
At its last meeting on Oct. 31, the bank kept rates on hold
in view of inflationary pressure while the government moved to
stimulate the economy. It had cut rates in August and September
by a cumulative 100 basis points.
"They're trying to aggressively stimulate the economy. This
further complements the fiscal stimulus," said Mohamed Abou
Basha, Cairo-based economist at EFG-Hermes.
The interim government launched a 29.6 billion Egyptian
pound ($4.3 bln) stimulus package, aided by over $12 billion in
aid pledged by Arab Gulf countries, after the army ousted
Islamist President Mohamed Mursi in July following mass protests
against his rule.
Ministers have announced another stimulus package for the
coming months, and central bank governor Hisham Ramez said at an
Egyptian-Gulf Arab investment forum on Wednesday that Egypt
expects to receive more aid from Gulf states.
The central bank may be counting on more foreign aid, said
William Jackson, economist at Capital Economics in London.
"It still looks like the economy is pretty sluggish," he
"We wouldn't be surprised to see more aid from the Gulf,
which might have given the central bank more confidence that it
can lower interest rates without causing further strains to
emerge in the balance of payments."
INFLATION, POUND PROBLEMS REMAIN
The central bank remains concerned about high inflation,
however, which may eventually lead it to raise interest rates.
"While 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 could increase above their current levels in
November and December," it said in its statement.
The weak Egyptian pound is another problem for the bank,
which had been under pressure to keep rates high to attract
foreign investors and help fund the country's large current
The pound has slumped since the 2011 uprising, which
chased away tourists and investors, two main sources of foreign
exchange, and on the black market it has been trading even
weaker than official rates.
The deficit on the current account, the broadest measure of
the country's trade with the rest of the world, widened in the
April-June quarter to $1.70 billion, an increase of $160 million
from the same quarter of 2012.
($1 = 6.8871 Egyptian pounds)
(Editing by Michael Georgy and Hugh Lawson)