CAIRO - 20 March 2024: The Central Bank of Egypt (CBE) decided to cancel the scheduled meeting of the Monetary Policy Committee (MPC) on Thursday, March 28, in light of the sufficiency of the special meeting of the MPC on Wednesday, March 6.
On March 6, the CBE raised the overnight deposit rate, the overnight lending rate, and the rate of the main operation in a special meeting by 600 basis points to reach 27.25 percent, 28.25 percent, and 27.75 percent, respectively. Additionally, the discount rate has been raised by 600 basis points to 27.75 percent.
Moreover, it decided to let the currency trade freely, stating that the CBE will continue to target inflation as its nominal anchor, allowing the exchange rate to be determined by market forces.
“The unification of the exchange rate is crucial, as it facilitates the elimination of foreign exchange backlogs following the closure of the spread between the official and the parallel exchange rate markets,” the CBE stated then.
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.
Following these announcements, the International Monetary Fund (IMF) and Egyptian authorities have achieved a staff-level agreement on a set of policies and reforms required to complete the first and second reviews under the Extended Fund Facility (EFF) arrangement.
The IMF loan has been augmented and increased to $8 billion instead of $3 billion "due to significant macroeconomic challenges that have become more complex to manage with the impact of the recent conflict in Gaza on tourism and Suez Canal receipts," according to the IMF statement.
"The authorities have demonstrated a strong commitment to promptly address all critical aspects of their economic reform program, which is supported by the IMF. Policy discussions and program reforms have focused on six pillars," said Ivanna Vladkova Hollar, the IMF mission Chief.
The six pillars of the reform program include transitioning towards a credible flexible exchange rate regime, implementing tighter monetary policy to reduce inflation and reverse dollarization, pursuing fiscal consolidation to maintain debt sustainability, slowing down infrastructure spending, ensuring sufficient social spending for vulnerable groups, and implementing reforms in state ownership policies to foster private sector growth.
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