Egypt secures extra $5 billion in IMF loans

CAIRO

Egypt has secured an additional $5 billion in IMF loans, after the central bank hiked interest rates and allowed the pound to plunge by nearly 40 percent.

The Central Bank’s decision to raise the key deposit rate to a record 27.25 percent caught the market by surprise.

The bank also committed to "allowing the exchange rate to be determined by market forces.”

Egypt's Prime Minister Mostafa Madbouly and the IMF said a deal had been signed to increase an IMF loan package from $3 billion to $8 billion.

The IMF's Egypt mission chief, Ivanna Vladkova Hollar, welcomed the measures, saying they were "decisive steps to move toward a credible flexible exchange rate regime."

She also said the move would "help increase the availability of foreign exchange.”

It was not immediately clear whether the bank would continue efforts to manage the pound's depreciation - as it has repeatedly done in the past - or if market forces would be entirely free to set a new unified exchange rate.

A fully flexible exchange rate and a tighter monetary policy were among the conditions set by the IMF, which for the past year has delayed its loan tranches and reviews.

Egypt had already devalued its currency three times in recent years.

But it had previously held back from fully floating the pound, citing concerns for the impact on Egyptians, two-thirds of whom live on or below the poverty line.

Analysts say Cairo has been emboldened to bite the bullet on exchange rate reform after the announcement late last month of $35 billion in foreign direct investment by the United Arab Emirates, which Hollar said "alleviates the near-term financing pressures."