CAIRO (Reuters) - Egypt's central bank cut its key overnight interest rates by 50 basis points (bps) at a monetary policy committee (MPC) meeting on Thursday as expected, saying it was stressing higher growth over lower inflation.

The cabinet appointed after the army removed Islamist President Mohamed Mursi from power on July 3 has been seeking to stimulate the economy after more than two years of stagnation.

It was the Central Bank of Egypt's (CBE) second rate cut since Mursi's ouster. On August 1 it also cut rates by 50 bps.

The economy has been bogged down by political instability since the country's 2011 popular uprising. In the year to June 30, gross domestic product grew a tepid 2 percent - far too slow to make an impact on youth unemployment, estimated at over 20 percent.

The MPC repeated the rationale it gave in its statement accompanying its decision to cut rates on August 1.

"Given that the downside risks to the GDP outlook still outweigh the upside risks to the inflation outlook, the MPC decided to further cut the key CBE rates," it said in a statement.

The cabinet has earmarked an extra 22.3 billion Egyptian pounds ($3.2 billion) in investments in the fiscal year to next June as part of a stimulus package.

It has also promised to repay arrears to local contractors and debts to foreign oil companies to persuade them to boost exploration and production.

Gulf Arab countries pledged $12 billion in aid to help Egypt's new government shore up the economy after the army removed Mursi.

Seven out of eight economists polled by Reuters had forecast cuts ranging from 25 bps to 100 bps. One economist had predicted no change.

Economists said controlling prices had become less of a priority after consumer inflation slowed to an annual 9.7 percent in August from 10.3 percent in July, due partly to a curfew to curb violence after Mursi's overthrow and partly to a strengthening of the Egyptian pound.

The pound weakened after the 2011 uprising against Hosni Mubarak, which chased away tourists and investors, two main sources of foreign exchange, but has strengthened since Mursi was ousted.

The bank cut its deposit rate to 8.75 percent and its lending rate to 9.75 percent, it said on its website. It lowered its discount rate and the rate it uses to price one-week repurchase and deposit operations to 9.25 percent.

(Reporting By Shadia Nasralla; Editing by Patrick Werr)

 

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