Capital crisis brews as Egypt floats the pound against the dollar

The Egyptian pound lost 12% in value against the US dollar against the US dollar, following a 15% spike in the inflation rate, the highest in four years amid growing economic difficulties.

The Egyptian pound devalued sharply against the US dollar. [Getty]

The Central Bank of Egypt decided on Thursday to implement exchange rate flexibility, allowing the value of the Egyptian pound to be regulated by market forces in a bid to rescue an already struggling economy.

As a result of this rather controversial decision, the Egyptian pound lost 12% in value against the US dollar, following a 15% spike in the inflation rate, the highest in four years in the context of growing economic difficulties, and the second floating in 2022.

“We have no flexibility. There are no dollars in the banks. Whoever asks to exchange Egyptian pounds for dollars will not find any. So there is no supply or demand,” said economics professor Ehab El-Deskouky. The New Arab.

Meanwhile, the Central Bank’s Monetary Policy Committee said in a statement that it had raised the new lending rate to 14.25% and the deposit rate to 13.25%.

“Today’s measures simply mean that the Egyptian pound has been sharply devalued against the US dollar, and in order to protect its value, the government has raised bank interest rates so that people are encouraged to save their money in local currency banks,” said Deskouky, who is also head of the economics department at the Sadat Academy of Management Sciences.

When contacted by TNAa number of exchange office owners said they had run out of dollars in their safes.

“After the central bank announced its decision this morning, several customers visited me and asked me for dollars, but I had none due to the monetary crisis we have already been facing since the devaluation this year,” said a currency exchange owner. at TNA.

“I think they hid everything they had, waiting for the dollar price to stabilize,” said a customer of the exchange shop.

On the other hand, a black market trader said TNAon condition of anonymity, that “people are likely to hold the dollars they have for a while and not trade them to expect the highest value”.

“A dollar is more valuable than gold today,” he said.

“I can’t even find money on the black market, and I have to leave on Saturday morning,” said a middle-aged engineer on a business trip. TNA in one of the banks in Cairo.

The value of the US dollar has fallen from 19.75 Egyptian pounds to the dollar to at least 22.85 pounds to the dollar based on data provided by the country’s main bank, the National Bank of Egypt, while the site central bank official was down most business. daytime.

It is still unclear whether the website was hacked or received high traffic which led to its malfunction.

Deskouky believes the decision will negatively influence people’s quality of life.

“Egypt is an import-dependent country. Therefore, the prices of all consumer goods will rise at a time when people’s income is still the same based on a devalued currency,” he said. he explains.

Egypt is also the world’s largest importer of wheat, most of which came from Russia and Ukraine. The country’s supply is subject to price variations on the international market.

The government reached an agreement, also on Thursday, after lengthy negotiations with the International Monetary Fund for a new $3 billion loan to support a reform program.

Egypt’s economy has been hit hard by the Covid-19 pandemic and the recent Ukrainian-Russian war, events that have also disrupted global markets and pushed up oil and food prices around the world.

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