Move FM Global News

CAIRO, Egypt: The Egyptian pound fell 13.5 percent this week after Egyptian authorities announced they would accept a $3 billion International Monetary Fund agreement which commits their currency to a “durably flexible exchange rate regime.”

In response, the Egyptian pound fell to around 22.75 to the dollar from 19.67.

Egypt’s central bank also raised interest rates by 200 basis points, in a bid to slow inflation and reduce demand-side pressures.

The increase in rates raised the overnight lending rate to 14.25 percent and the overnight deposit rate to 13.25 percent.

Shortly after the Ukraine invasion by Russia in February, Egypt began negotiations with the IMF for a new loan.

At the same time, the IMF has long-sought greater exchange rate flexibility for the Egyptian currency.

In agreeing to provide a $3 billion, 46-month loan, the IMF said a flexible exchange rate regime should be “a cornerstone policy for rebuilding and safeguarding Egypt’s external resilience over the long term.”

The current IMF agreement is to be followed up with a $5 billion loan in June 2023, reflecting “broad international and regional support for Egypt.”

Commenting on this week’s loan agreement, Egypt’s central bank said it was committed to intensify economic reforms and had “moved to a durably flexible exchange rate regime, leaving the forces of supply and demand to determine the value of the EGP against other foreign currencies.”

The central bank allowed the pound to depreciate by 14 percent against the dollar in March, along with smaller amounts of depreciation in recent weeks.

Following the start of the war in Ukraine, the prices Egypt paid for wheat and oil rose, while tourism from two of its largest markets, Ukraine and Russia, quickly fell.

Egyptian inflation rose to 15 percent in September, the highest jump in nearly four years, according to official data.