The Egyptian pound weakened further yesterday on the second working day following the central bank’s move to devalue the currency and let it float on Thursday.
The stock market continued to rally, jumping 6.1 per cent, as the Egyptian government comes closer to fulfilling conditions needed to tap a US$12 billion loan from the IMF.
It was also the first day that the interbank foreign exchange market restarted in Cairo after a long period of dormancy, but there was apparently little activity on it, according to Bloomberg data. The rate closed at 15.32, 6.8 per cent weaker than the closing official rate of 14.27 on Sunday.
Meanwhile, the price of buying the dollar rose to 16 pounds, while the rate for selling the dollar for pounds was 15.5 at banks, according to a report from the Associated Press. The average bank selling rate for the US dollar on Thursday was 14.27, while for buying it was 13.52, according to data on the website of the central bank. The same data for Sunday was not available on the website before the newspaper went to print.
The central bank devalued the pound by almost a third to 13 pounds against the dollar from a previously fixed rate of 8.85 pound on Thursday. The bank said the starting exchange rate would “serve as soft guidance to jump-start the market”.
At the same time, the central bank also raised its key interest rates by 300 basis points and said that it would also stop trying to control what can be imported. And on Friday, the government announced a reduction in fuel subsidies, bringing it closer to meeting demands made by the IMF for the $12 billion loan. The IMF has also asked Egypt to raise an additional $6bn in financing, mostly from allies in the Arabian Gulf, before it starts disbursing the loan.
This is not the first time that Egypt has moved to a more flexible exchange rate. In January 2003, the country devalued the currency by 14 per cent – a move that killed a black market trade in US dollars and attracted billions of dollars in international investment before the financial crash of 2008.
Controls on the pound, however, reappeared in the aftermath of the 2011 uprising that ousted the president Hosni Mubarak and led to years of economic decline and the reappearance of the black market.
Egypt relies heavily on inflows of hard currency and has been suffering for years from decreasing receipts from key sources including foreign direct investment, the Suez Canal, remittances from Egyptians abroad and tourism – especially since the downing of a Russian jet that exploded in October last year over the Sinai desert.
mkassem@thenational.ae
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