Central Bank of Egypt's headquarters is seen in downtown Cairo, Egypt, November 3, 2016. (Reuters)
Egypt's central bank decided on Thursday to freely float the pound and raise key interest rates as part of a set of reforms aimed at alleviating a dollar shortage and stabilizing the country's flagging economy.
The Central Bank of Egypt (CBE) said its decision to liberalize the exchange rate is part of a government reform program that aims at "trimming the budget deficit and cutting public debt."
It added in a statement on its official website that the new move is meant to "eliminate trading the currency on the black market, boost the economy and achieve higher growth rates."
Egypt has been facing an economic crisis since the 2011 uprising followed by political and security unrests spooking investors and tourists who represent major sources of hard currency.
The new measures included raising key interest rates by 300 basis points.
The overnight deposit rate, the overnight lending rate and the rate of the CBE's main operation have been raised to 14.75 percent, 15.75 percent and 15.25 percent respectively.
The CBE said earlier Thursday that it had temporarily devalued the Egyptian currency by 32.4 percent to EGP 13 to the dollar until 1 pm local time, when it will hold an exceptional forex auction and allow "the supply-and-demand mechanism" to set the price.
"This will help end fluctuation in currency markets in a manner that reflects the real powers of supply and demand," read the statement.
The CBE is allowing local banks to move within a 10-percent margin above and below the above-mentioned exchange rate until the auction.
The bank said there will be no limits on foreign currency deposits or withdrawal for both individuals and firms. However, it said, a previous cap of $50,000 in cash deposits per month and $30,000 in withdrawals per day for importers of non-essential goods will remain in place.
No conditions will be imposed on the depositing of foreign currency, the bank added, quashing reports in recent days that clients were being asked to provide proof of the source of their foreign cash to their banks.
The rumors had sparked confusion in the black market over the past two days, leading the dollar rate to noticeably decline by at least three Egyptian pounds to register an average of EGP 15 on Wednesday.
The pound had been rapidly tumbling to record lows in the black market in recent weeks, threatening to bring business to a standstill, before it started to rebound earlier this week.
Banks will be allowed to extend working hours until 9pm as well as on weekends for foreign currency dealings and the cashing of expatriate remittances.
This article has been corrected; it originally said that the pound had been devalued by 48 percent; in fact, the devaluation rate of the pound is 32.4 percent while the appreciation rate of the dollar is 48 percent.