Egypt's central bank left its key policy rates steady, as expected by most economist, saying the current rates were appropriate given the balance of risks surrounding the outlook for inflation and economic growth.
In its statement, the Central Bank of Egypt's (CBE) monetary policy committee dropped last month's reference to the need for fiscal consolidation. Egypt is expected to replace its current sales tax with a long-awaited Value Added Tax (VAT) by September as part of a fiscal reform that also aims to cut energy subsidies to help trim the budget deficit.
The CBE, which has raised its rates by a total of 250 basis points following hikes in March and June, acknowledged the headline inflation rate accelerated to 13.97 percent in June from 12.30 percent in May but noted the monthly rate had dropped to 0.78 percent from 3.05 percent in May.
The rise in inflation was partly due to unfavorable base effects and inflation was also pushed up by higher food prices, particularly red meat and poultry, along with seasonal increases for clothing and footwear in connection with Eid-Al-Fitr festivities that mark the end of Ramadan.
The central bank made little reference to the exchange rate of the Egyptian pound apart from saying that the pass-through of previous movements to domestic prices remained limited.
Last week CBE Governor Tarek Amer said to a local news agency that the time was not right to float the pound, with a devaluation depending on what the bank considers to be an appropriate time.
The pound is currently trading around 8.88 to the U.S. dollar following an almost 14 percent devaluation in March to help relieve years of foreign currency shortage by creating a more favorable investment climate and attract capital inflows.
However, a black market for foreign currency continues to exist, with the pound trading above 11 to the dollar.
The CBE's main benchmark overnight deposit rate was maintained at 11.75 percent, the overnight lending rate at 12.75 percent and the rate on its main operation at 12.25 percent. The discount rate was left at 12.25 percent.
