Central Bank of Egypt Shocks the Country by Floating the Pound

By: Caravan Staff
@Caravan_AUC

The Central Bank of Egypt (CBE) has officially floated the EGP setting an exchange rate of 13 EGP per USD, within a plus or minus 10 percent band.

The CBE was at press time expected to hold a foreign exchange auction on Thursday.

The auction would allow the EGP to be traded based on a supply-and-demand structure.

The CBE’s main objective, according to the press release statement, is price stability over the period of time investors hold their stocks.

The dollar will now be set at EGP 13.01 for selling, and EGP 13.50 for buying.

The floating of the pound will secure the three-year USD 12 billion loan from the International Monetary Fund (IMF), analysts say.

“We have no other choice, we don’t have the luxury to choose not to float,” Assistant Professor of Finance Neveen Ahmed told The Caravan.

The CBE also announced an increase in interest rates up to 300 basis points. A basis point is the percentage change of the value or rate of a certain asset.

Until last September, deposit rates had remained unchanged at 11.75 percent in all banks, while the lending rate was at 12.75 percent.

However, the deposit rate now reached 14.57 percent, while the lending rate was recorded at 15.75 percent.

Banque Misr, Banque du Caire and Al Ahly will offer denominated EGP certificates with an interest rate between 16 and 20 percent.

The Egyptian stock market opened at 10:00 am on Thursday and registered around EGP 13.5 million in the first minute only, according to the EGX 30 Index, a stock market index for securities in Egypt.

As a result, the market capitalization gained EGP 23 billion on Thursday’s early trading activities.

At around 11:00 am, the Egyptian stock market suspended the trading of 43 stocks, which surpassed the limit of their specified price – largely boosted by the CBE’s floatation.