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Egypt's central bank left its key policy rates steady for the second month in a row, saying inflation is expected to remain in line with its target for the fourth quarter of this year before declining to single digits after the temporary effect of supply shocks dissipate.


The Central Bank of Egypt (CBE) kept its overnight deposit rate, the overnight lending rate and the rate of the main operation at 16.75 percent, 17.75 percent and 17.25 percent, respectively.


This year the CBE has cut the rate by a total of 200 basis points.

In May last year the CBE set a target for inflation of 13 percent, plus/minus 3 percentage points, for the fourth quarter of 2018 and then single digits thereafter.


Egypt's urban inflation rate decelerated for the 10th consecutive month in May to 11.4 percent from a high of 32.95 percent in July 2017 while unemployment also continued to decline to 10.6 percent in the first quarter of this year, the lowest rate since the fourth quarter of 2010.


Inflation surged last year after the government slashed subsidies to energy and raised taxes in connection with a US$12 billion International Monetary Fund (IMF) aid package. In November 2016 the central bank also floated the pound, which quickly lost more than half its value, boosting import prices and thus inflation.


In January the IMF forecast that inflation would fall to 12 percent by June but also warned against premature rate cuts by the central bank.


Economic reforms have helped boost foreign and domestic investment and the economy has been growing steadily since the fourth quarter of 2016 and grew by an annual rate of 5.4 percent in the first quarter of this year, up from 5.3 percent in the previous quarter.


The country's potential output is also estimated to have benefitted from the structural reforms, thus easing inflationary pressures from the pickup in demand, CBE said.


Egypt's pound has depreciated slightly this year and was trading at 17.89 to the U.S. dollar today,  down 0.4 percent this year.

 

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