January 16, 2014 / 6:01 PM / 4 years ago

UPDATE 1-Egypt c.bank leaves key overnight rates on hold

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CAIRO, Jan 16 (Reuters) - Egypt's central bank kept its official interest rates on hold as expected at a monetary policy committee meeting on Thursday, as the government tries to stimulate the economy while keeping inflation in check.

Egypt's economy has been battered by three years of political instability since a popular uprising ousted autocrat Hosni Mubarak in 2011, causing tourists and investors to flee.

Egypt's gross domestic product (GDP) grew a meagre real 1.04 percent in the first quarter of this fiscal year - the three months to Sept. 30 - compared with 2.1 percent in the same quarter of last year, the central bank said in a statement.

GDP grew 2.1 percent in the previous fiscal year, too little to make an impact on youth unemployment, estimated at over 20 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.

"Given the mixed balance of risks surrounding the inflation and the GDP outlooks at this juncture, the Monetary Policy Committee judges that the current key CBE rates are appropriate," it said.

The bank kept its deposit rate at 8.25 percent and its 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 on its website.

Five of seven economists in a Reuters survey had forecast the bank would leave its overnight rates unchanged. Two expected another 50 basis point reduction.

At its previous monetary policy meeting on Dec. 5 the central bank had unexpectedly cut its key interest rates by 50 basis points, saying it was more concerned about boosting growth than taming inflation.

Core inflation dipped slightly to 11.91 percent in the year to December from 11.95 percent in November.

However, the central bank is also under pressure to keep interest rates high to attract foreign funds into the Egyptian pound. The bank has spent tens of billions of dollars supporting its currency since the 2011 uprising which hammered tourism revenues and foreign investment.

Egypt's cabinet, appointed after the ouster of the Islamist President Mohamed Mursi from power on July 3 following mass protests against him, has announced a 29 billion Egyptian pound ($4.2 billion) stimulus package to revitalise the economy.

Finance Minister Ahmed Galal in December said Egypt plans to spend around 30 billion pounds on a second stimulus package that will be launched in January.

Gulf countries have pledged more than $12 billion in aid to Egypt since July.

$1 = 6.9622 Egyptian pounds Reporting by Asma Alsharif; Editing by Kevin Liffey and Toby Chopra

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