Egypt Pound Slumps As Central Bank Floats Currency

CAIRO,, (APP - UrduPoint / Pakistan Point News - 03rd Nov, 2016 ) - Egypt's pound plunged in value on Thursday as the central bank floated the Currency to address a Dollar crunch that threatened to cause some imports to grind to a halt.

The dollar was trading on official markets at between 13.5 and 14 Egyptian pounds, according to several banks contacted by AFP, up sharply from the previous rate of 8.8. The government of President Abdel Fattah al-Sisi is rolling out an austerity programme and seeking billions in support from abroad in order to meet conditions, including devaluation, for a $12 billion loan from the International Monetary Fund.

Floating the pound had long been among a list of measures demanded by investors and international creditors, but had been avoided in the fear that rising prices could provoke unrest. Thursday's central bank decision came as a surprise, after officials said they would only consider a flotation once foreign reserves reached $25 billion, up from September's $19.6 billion.

The bank said it had moved to a "liberalised exchange rate... to create an environment for a reliable and sustainable supply of foreign currency." Egypt has struggled to boost its foreign currency reserves in the political and economic turmoil following the January 2011 uprising that toppled former ruler Hosni Mubarak.

Central bank governor Tarek Amer said that from Sunday all banks would have full currency controls without any interference from the regulator, describing the move as "historic". "We are fully committed to the flexible exchange rate policy," Amer said at a news conference in Cairo.

"There are no restrictions over dollar transactions at banks." The IMF welcomed the central bank's decision, saying it would "make more foreign exchange available". The move "will improve Egypt's external competitiveness, support exports and tourism and attract foreign investment," IMF mission chief for Egypt Chris Jarvis said in a statement.

The flotation follows comments last week from IMF chief Christine Lagarde claiming Egypt was undergoing a currency "crisis" and suggesting a quick devaluation to tackle a widening gap between the official and black market rates.

Egypt's EGX 30 stock index jumped more than eight percent after opening to 9,231 points. On the black market this week the dollar was trading at a historic high of 18 Pounds before losing value amid speculation of a devaluation. Importers and businesses had been forced to resort to the black market for Dollars, with the high prices making their businesses increasingly unfeasible.