• Thursday, April 18, 2024
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BusinessDay

Egypt devalues currency for fourth time in 2yrs after jumbo rate hike

Egypt learns how not to float a currency from Nigeria’s mistakes

Egypt devalued its currency for the fourth time since 2022 on Wednesday following a record 600 basis point hike in interest rates by the central bank.

The Egyptian pound declined 26.5 percent to a record low of 42 per dollar as of 10:35 a.m. in Cairo on Wednesday, having traded at about 30.9 for the past year.

Read also: Egyptian bonds jump on UAE deal, pound gains on black market

At the unscheduled meeting where interest rates were raised, the central bank said it will allow the market to determine the exchange rate, thereby paving the way for the devaluation that followed moments later.

UK-based HSBC bank had projected another devaluation of the pound in the first quarter of 2024 with the US dollar to be valued from 45 – 50 EGP.

Authorities had implemented three sharp devaluations of the currency since early 2022, but each time have reverted to fixing the rate despite pledges to the International Monetary Fund to shift to a permanently flexible system.

A $3 billion financial package reached with the IMF in 2022 faltered after Egypt failed to let its currency float freely or make progress on the sale of state assets. The Fund delayed disbursements of about $700 million due in 2023.

Egypt has been gripped by an economic crisis and soaring inflation for more than two years. Although Egypt’s annual inflation dropped to 29.8 percent in January from 33.7 percent in December, the rate is one of the highest in Africa and is fanning a cost of living crisis in the country.

Read also: Egypt demands $1,000 residency fee from unlawful migrants as dollar shortage bites

Years of reckless spending and economic mismanagement came to a head in 2022, when Russia’s invasion of Ukraine helped plunge Egypt into a financial crisis. The war in Gaza has only deepened the pain.