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Egypt’s move to allow a weaker pound is winning praise from money managers including Goldman Sachs Group Inc. who say it will arrest foreign-capital outflows and boost the nation’s chances of winning the next International Monetary Fund loan.
The Egyptian pound tumbled as much as 14% to 18.2323 per dollar in the offshore market, its sharpest drop since a November 2016 devaluation that had helped to pull the country out of a dollar squeeze and turned it into a market darling.
Investors are predicting a similar turnaround this time as the nation grapples with surging inflation and external imbalances, both worsened by the war in Ukraine.
Egypt’s Central Bank raised its key interest rate Monday for the first time since 2017, citing inflationary pressures triggered by the coronavirus pandemic and Russia’s war in Ukraine, which hiked oil prices to record highs.
The move saw the Egyptian pound slip, trading at over 18 to the dollar by midday (Monday, March 21) — up from an average of 15.6 pounds for $1. The country has suffered from price hikes since the government embarked on an ambitious reform program in 2016 to overhaul the country’s battered economy.
The war in Ukraine has hit hard on many nations and threatened food supplies and livelihoods of people across the world. Brent crude, the price basis for international oil trading, spiked over $112 per barrel on Monday after nearly hitting a peak of $140 earlier this month.
The Central Bank of Egypt increased the key interest rate by 100 basis points to reach 9.75%, up from 8.75%. The overnight deposit and lending rate were also raised by 100 basis points each to reach 9.25% and 10.25% respectively, the bank said.
The increases followed an unscheduled meeting of the bank’s monetary policy committee, which had been set to meet on Thursday.
Egypt jumps over 4% to mark best day in nearly 2 years
Egypt’s blue-chip index posted its biggest percentage gain in nearly two years on Monday after the central bank hiked its interest rates, while other markets in the Middle East ended mixed.
