Egypt Decides to Devalue its Currency

Egypt Devalues Its Currency, Allowing Market Forces to Determine Exchange Rate

In a surprising move, the Central Bank of Egypt has allowed the exchange rate to be determined by market forces, leading to a significant devaluation of the Egyptian pound. Within minutes, the currency lost more than a third of its value, with the US dollar rising from 30 pounds to 49.15 pounds.

At a recent monetary policy meeting, the Central Bank of Egypt also increased the Central Bank key deposit rate by six points to a record level of 27.25 percent in an effort to combat inflation. The decision comes amidst severe foreign exchange shortages and aims to accelerate the process of monetary tightening to curb inflation and lower underlying inflation rates.

This marks the third devaluation of the Egyptian currency in recent years, with previous hesitancy due to concerns about the impact on the majority of Egyptians living below the poverty line. However, experts suggest that the move may have been influenced by the announcement from the United Arab Emirates of $35 billion in direct foreign investment.

The central bank’s decision to allow market forces to determine the exchange rate reflects a new approach in Egypt’s economic policy. As the country navigates through economic challenges, the effects of this devaluation on the population and the overall economy remain to be seen.

 

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