File Photo:European Bank for Reconstruction and Development (File Photo: Reuters)
The European Bank for Reconstruction and Development (EBRD) welcomed on Thursday the liberalisation of the pound's exchange rate by the Central Bank of Egypt.
The decision by the CBE Thursday to freely float the pound and raise key interest rates was announced as part of a set of reforms aimed at alleviating a dollar shortage and stabilising the country's flagging economy.
After the CBE decision, the EGP was devalued by nearly 60 percent to register an average of EGP 14 per US dollar instead of EGP 8.78 previously, as the local banks will be freely allowed to set their exchange rate.
In an official statement, the EBRD described the flotation as a positive step in the right direction that will improve the functioning of foreign exchange markets.
The currency float and the progress in closing the external financing gap, according to EBRD, will support progress towards the approval of a $12 billion loan from the International Monetary Fund (IMF), which would be a positive for investor confidence.
The statement added that this move will help reduce foreign exchange shortages that have been impairing the private sector’s ability to import production inputs, to plan and to repatriate profits, and will increase the economy’s flexibility in response to external shocks, strengthen Egypt’s official reserve position and boost investor confidence.
The devaluation of the EGP will also, according to EBRD, improve the competitiveness of Egypt’s exports and unlock private sector activity that has been hampered by the lack of foreign exchange availability, which will help to drive some of the improvement in growth that is forecast for FY2016-17, as reported by the European Bank today.