Egypt’s central bank announced on Thursday the flotation of the Egyptian pound, setting an initial guidance rate of EGP 13 to the dollar for the banking community until its exceptional auction takes place.
An exceptional auction is scheduled to take place at 13:00 Cairo time on Thursday. The currency rate will be decided by the market’s supply and demand forces.
The Central Bank of Egypt also hiked interest rates by 300 basis points for "one night only" to rebalance currency markets, according to its press release.
The Egyptian pound’s official rate of 8.8 was maintained by the central bank since March when it devalued the currency.
Egypt's pound traded at its strongest rate in over two weeks on the black market on Wednesday, Reuters reported, amid speculation that new bank rules may restrict foreign currency obtained on the parallel market.
The black market rate for dollars surged to unprecedented highs this week, reaching roughly EGP 18.25 on Monday, more than twice the official rate of EGP 8.8.
For months, speculation has mounted that the central bank would devalue the currency as the gap between the official and the unofficial rates continued to widen.
The central bank said the move aims to regain foreign currency exchange within the banking sector and ending the disturbance in the currency market.
"The Central Bank’s decisions come in the context of the government’s economic reform programme, with the aims of reducing the budget deficit and public debt through reforming the subsidy system, cutting back on government spending, slashing imports particularly random importing and increasing exports," the bank said.
Egypt is waiting for approval by the International Monetary Fund's board of a three-year loan program. In return, Egypt must carry out economic reforms, including a devaluation of the pound and painful subsidy cuts.
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