Egyptian Central Bank on Thursday devalued the country’s currency by 48 percent in order to comply with the demands from International Monetary Fund in exchange for a $13 Billion loan for a period of three years.
After the approval of the three-year loan by IMF, Egypt will in turn carry out economic reforms, including painful subsidy cuts.
The devaluation pegs the Egyptian pound at 13 to the dollar, up from nearly nine pounds on the official market.
“The Central Bank’s decisions come in the context of the government’s economic reform programme, with the aims of reducing the budget deficit and public debt through reforming the subsidy system, cutting back on government spending, slashing imports particularly random importing and increasing exports,” said the bank.
The Bank also increased interest rates by three hundred basis points just for “one night only” saying this was aimed at rebalancing the currency markets following weeks of turbulence.
“The CBE hereby announces its decision to move, with immediate effect, to a liberalised exchange rate regime in order to quell any distortions in the domestic foreign currency market,” said the bank in a statement.
“This move will allow market demand and supply dynamics to work effectively in order to create an environment of reliable and sustainable provision of foreign currency.”
An exceptional auction is scheduled to take place at 13:00 Cairo time on Thursday where the currency rate will be decided by the market’s supply and demand forces.
Egypt’s pound traded at around EGP 18, its strongest rate in over two weeks on the black market on Wednesday, Reuters had reported.
The black market rate for dollars surged to unprecedented highs this week, reaching roughly EGP 18.25 on Monday, more than twice the official rate of EGP 8.8.
