May 14, 2020 / 3:17 PM / 22 days ago

UPDATE 1-Egypt's central bank keeps interest rates steady

(Adds details from committee statement, background)

CAIRO, May 14 (Reuters) - Egypt’s central bank left its main interest rates on hold on Thursday, balancing a steep growth slowdown caused by the coronavirus crisis with an unexpected uptick in inflation.

All but two of 19 analysts polled by Reuters had expected the bank would keep rates steady at its regular Monetary Policy Committee (MPC) meeting on Thursday. The other two forecast a 50 basis point cut.

Egypt reported gross domestic product growth of 5.6% in the last quarter of 2019. But since the onset of the coronavirus crisis it has contended with the collapse of its tourism industry and a decline in gas exports, Suez Canal revenue and remittances from workers abroad.

“Leading indicators showed broad improvement on average in January and February 2020, before reflecting a slowdown in economic activity in March and April 2020,” the MPC said.

Egypt had been targeting 5.6% growth for the current fiscal year which ends in June but is now looking at 4.2%. It had forecast 6% growth for 2020/21 but is now predicting 2% if the coronavirus crisis continues through December.

The MPC attributed an uptick in annual inflation to 5.9% in April from 5.1% in March to an unfavorable base effect and stronger seasonal demand due to the onset of Ramadan, which began on April 24.

The MPC also left rates on hold at its last meeting on April 2, two weeks after having slashed them by three percentage points at a surprise meeting as a “pre-emptive” move to support the economy in the face of the COVID-19 outbreak.

It said keeping key policy rates unchanged was consistent with achieving its inflation target of 9 percent plus or minus three percentage points by the last quarter of 2020.

The overnight lending rate is 10.25% and the overnight deposit rate 9.25%. (Reporting by Nadine Awadalla and Ulf Laessing; Writing by Patrick Werr; Editing by Alison Williams and Alexandra Hudson)

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