Egypt committed to flexible exchange rate, central bank deputy says

Egypt is committed to sustaining a flexible exchange rate to ensure the availability of foreign currency, the central bank’s deputy governor said on Thursday, a key condition under a $8bn loan programme it signed with the International Monetary Fund (IMF).

Egypt allowed its currency to weaken sharply on March 6 after keeping it fixed to the dollar for nearly a year.

The overvalued currency led to an acute shortage of foreign currency and a slowdown in critical imports, including manufacturing inputs and consumer goods.

The devaluation was part of a support programme agreed with the International Monetary Fund two weeks after Egypt announced a $35bn real estate investment by the UAE.

The IMF said that loan disbursements under the programme would be tied to sustained exchange rate flexibility.

Central Bank of Egypt deputy governor Rami Aboulnaga said in an interview with the Atlantic Council that Egypt was now resolved to keep its currency flexible.

“Whatever the price is, is something that the market will determine. Whether it’s fair or not, it will only be set by the market and market dynamics,” he said.

Egypt would ensure that different economic agents would be able to source foreign currency liquidity, “as opposed to the shortages and the bottlenecks that have prevailed in the past.”

“This is one of the key objectives and benchmarks that we are eyeing,” Aboulnaga said.

The central bank sharply devalued the currency three times between March 2022 and March 2023, but each time reverted to a fixed rate despite pledges to the IMF to shift to a flexible system.

A robust black market quickly developed, and at one point the currency weakened to as low as EGP72 to the dollar compared to the official rate of EGP30.85.

Exchange rate uncertainty led Egyptians abroad to withhold sending earnings home, wreaking havoc on a top source of foreign exchange.

Remittances plunged by nearly $10bn over a year to $22bn in the 12 months to end-June 2023.

“What we are seeing today is a resurgence in interbank volumes. We are seeing also the market being able to clear itself and we’re seeing the liquidity finding its way back into the market,” Aboulnaga said.

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