CBE move to let currency trade freely to reinforce efforts to tackle inflation: Egypt’s PM

CAIRO – 6 March 2024: Prime Minister Mostafa Madbouly commended decisions announced by the Central Bank of Egypt (CBE) today, including letting the currency trade freely. He stated that these measures support state’s efforts to address inflation.

In a significant development, Egypt devalued its currency on Wednesday, resulting in the Egyptian pound's value decreasing to over 50 per dollar by midday, in contrast to the maintained rate of approximately 30.9 over the past year.

The CBE also raised interest rates by 600 basis points (6 percent), reaching 27.25%.

During the weekly Cabinet meeting, PM Madbouly emphasized the significance of the CBE's decisions, highlighting their crucial role in transitioning to a flexible framework to tackle inflation.

He underscored that unifying the exchange rate of the Egyptian pound is essential in reducing the heightened demand for foreign currency.

Furthermore, he stressed that eliminating the parallel market will aid in mitigating inflation.

Madbouly stated that the government, in coordination with the CBE, will closely monitor the markets in the coming days to assess the impact of these decisions.

In addition, the government will continue implementing policies to rationalize government spending, aiming to overcome the current economic challenges.

The premier reiterated the government's commitment to collaborating with the CBE to reduce inflation rates, manage debt, initiate a downward trajectory, and advance the structural reform program.

 

The government will also maintain policies that support an increased contribution from the private sector to the national economy.

The devaluation of the Egyptian currency brings an end to months of speculation regarding the timing of Egypt's currency devaluation.

The move was prompted by a considerable disparity between the official exchange rate of the Egyptian pound against the US dollar and its price in the parallel market.

Huge foreign currency inflows

The devaluation follows Egypt's recent signing of a colossal $35 billion agreement with the Abu Dhabi Developmental Holding Company, representing the largest foreign direct investment in the country's history.

This investment is crucial amid a foreign currency shortage that Egypt has been grappling with over the past two years.

Shortly after the CBE decisions, a high-level source said the Egyptian government and the International Monetary Fund (IMF) are on the verge of signing an agreement to augment the Egyptian loan program within a few hours, Al Qahera News reported.

This agreement is expected to bolster the economic reform program and increase foreign liquidity inflows into the local market, the source said.

Moody's, a global credit rating agency, has anticipated that the IMF will enhance Egypt's loan program to $10 billion.

The IMF has cited the need for the new package to support Egypt in the face of economic challenges arising from global circumstances, including the ongoing impact of the war in Gaza on Egypt.