Egypt meets IMF demand, let go currency to access $12bn loan

The Egyptian pound was devalued by 32 per cent on Thursday as Cairo prepared to float the currency, meeting a key demand for the International Monetary Fund to release a $12 billion loan to help the country’s ailing economy. The Central Bank of Egypt said it was “liberating the price of [the Egyptian pound] and setting the exchange rate according to demand and supply”.

The rate is set at 13 to the dollar, compared with the previous official rate of 8.88, set in March when the currency was devalued by about 14 per cent in a bid to close the gap with the black market unofficial rate The central bank also raised its benchmark interest rate by 300 basis points to 14.75 per cent. It is set to hold a currency auction at 1pm local time.

The currency will float freely after the sale, according to bankers familiar with the decision. Egyptian stocks jumped after the central bank said it would allow the currency to float as part of measures designed to tackle a dollar shortage sapping economic growth. The EGX 30 Index rallied as much as 8.3 per cent higher, the most in eight years, before falling back.

Bankers expect the gap between the official and black market rates to now narrow. The pound had been trading in the black market as high as 18.25 to the dollar in recent days. It tumbled after Saudi Arabia halted petroleum aid to Egypt this month, forcing Cairo to spend $500m for oil products on the spot market. Speculation has been mounting for months that the bank would devalue its currency as the black market and official rate diverged to a record extent.

The latest measures move Egypt closer to securing a $12bn loan from the IMF. Chris Jarvis, the Fund’s mission chief for Egypt, welcomed the move. He said in a statement “the flexible exchange rate regime, where the exchange rate is determined by market forces, will improve Egypt’s external competitiveness, support exports and tourism and attract foreign investment.” The country has already secured $3bn from Saudi Arabia and the United Arab Emirates and less than $1bn from Group of Seven countries