Egypt devalues currency by 48% to meet IMF loan demand
- Author: Zachary Reyes Nov 07, 2016,
Nov 07, 2016, 19:22
Thursday's devaluation pegged the Egyptian pound at 13 to the dollar, down from 8.8 pounds on the official market.
In late 2012, the government liberalised the price of the highest quality gas, octane 95, which is now sold at EGP 6.25 a litre. The ETF was down 3% this year, while shares of the bank were down 8% in US trading this year.
The central bank said it had floated the pound and hiked interest rates by 300 basis points to rebalance currency markets.
Egypt liberalized its exchange rate and devalued the currency by nearly 50 percent on Thursday to combat its severe economic problems and lay the groundwork for a vital $12 billion loan from the International Monetary Fund.
The stock market gained about 23.3 billion Egyptian pounds to a record 440.6 billion at the beginning of Thursday's trading, according to the official MENA news agency.
The resulting shortage of hard currency has been acutely felt by the country, which heavily relies on imports. This is not the first time Egypt has moved to a more flexible exchange rate.
The Egyptian pound is traded at rate of 12 EGP per 1 United States dollars, while the rate in Wednesday was 8.8 EGP per 1 USD.
"The resetting of Egypt's economic equation has begun at last, but much more needs to be done by the government to reform the economy", he added.
Egypt has resisted letting its currency freely float and has instead made piecemeal devaluations since the uprising that removed the former president Hosni Mubarak in February 2011.
Egypt's Central Bank floated the currency on Thursday, starting at a guidance price of 13 pounds to the U.S. dollar, with media reports suggesting it would offer US$4 billion in a historic foreign currency auction.
Dr Hisham Ibrahim, professor of financing and investment at Cairo University, said the pound floating is to give a big push to imports, particularly as Egyptian commercial chambers have already stopped the imports of unnecessary products three months back.
Thursday's central bank decision came as a surprise after officials said they would only consider flotation once foreign reserves reached $25bn, up from September's $19.6bn.
Egypt's benchmark EGX 30 Index for stocks rallied 3.4 percent in Cairo on Thursday, the best performance among more than 90 measures tracked worldwide by Bloomberg, recording the highest close in 17 months.
Egypt is also facing another painful must it's expected to reduce or lift altogether state subsidies on fuel to meet International Monetary Fund conditions.
The central bank said banks would be allowed to open until 9pm and over the weekend to make transactions.
Egypt's economy grew by 4.2 per cent last year according to the International Monetary Fund, a rate that is expected to slow to 3.8 per cent this year and 4 per cent next year.