In an effort to address economic challenges, the Central Bank of Egypt (CBE) has opted for exchange rate flexibility, allowing the Egyptian pound's value to be determined by the market. This move is part of a broader strategy to mitigate the economic downturn, accompanied by a significant interest rate hike of 600 basis points. The CBE's decision comes in response to escalating inflation and the pressures of foreign exchange shortages that have hindered economic growth and fueled a parallel exchange market. The CBE aims to stabilize inflation by letting the exchange rate fluctuate freely.
Following the implementation of these measures, the Egyptian pound experienced a sharp depreciation against the US dollar, with the exchange rate reaching approximately 50 EGP to 1 USD, a significant drop from the previous day's rate. The parallel market has temporarily halted operations to reassess the situation.
Recent data indicates a decline in Egypt's net foreign assets, highlighting the ongoing economic pressures. The CBE has also eased restrictions on credit card usage abroad, a response to the reliance on the parallel market for foreign currency, especially for critical imports like wheat. This scenario underscores the challenges faced by the Egyptian economy, caught between official and parallel currency valuations.
Source: newarab.com