Egypt floats pound prompting it to lose over third of value

CAIRO

Egypt's Central Bank announced yesterday it will allow the exchange rate to be set by the market, causing the pound to lose more than a third of its value within minutes.

Shortly after 12 p.m., the Egyptian pound was trading at a record high of 49.15 pounds to the U.S. dollar, after more than a year of a stabilized official exchange rate of around 30.9.

At a surprise monetary policy meeting yesterday, the Central Bank committed to "allowing the exchange rate to be determined by market forces," saying in a statement that "the unification of the exchange rate is crucial."

Amid dire foreign currency shortages, the parallel market rate had surged to 70 pounds to the dollar earlier this year, sending consumer prices soaring in the import-dependent country.

Since the most recent economic crisis began in early 2022, Egypt has been buckling under rampant inflation, which reached a record high of nearly 40 percent last August.

In an attempt to rein in inflation, the Central Bank also raised its key deposit rate by six points yesterday, to a record high of 27.25 percent.

The Central Bank described the move as an attempt to "accelerate the monetary tightening process in order to fast-track the disinflation path and ensure a decline in underlying inflation."

Egypt has been in talks with the International Monetary Fund (IMF) over increasing the value of a $3 billion loan facility already agreed with the lender.

A fully flexible exchange rate and a tighter monetary policy were among the conditions attached by the IMF and loan tranches had been repeatedly delayed until the reforms go ahead.

Prior to yesterday's announcements, Egypt had already devalued its currency three times in recent years. But it had held back from fully floating the pound, citing concerns for the impact on Egyptians, two-thirds of whom live below or right on the poverty line.