Egypt’s Central Bank devalues pound from 7.83 to 8.95 against US dollar, challenging the black market for dollars.
In a surprisingly relieving move, Egypt’s Central Bank devalued the Egyptian pound by about 13 percent during a US$200 million auction on Monday according to The National. The devaluation jumped from the official rate of 7.73 to 8.85.
This comes after the Central Bank Governor had made complaints regarding the unfair valuation of the pound while denying that there have been plans to devalue the currency. The Central Bank now sells the dollar at a lower rate in the auction, as the pound has been devalued from 7.83 to 8.95 to the US dollar outside the auction system.
This move is hoped to relieve the dollar shortage problem which has been feeding Egypt’s black market and stifling its businesses, according to AP. However, the move does not come without risks as there is now a possibility that the increasing prices might cause backlash in the Egyptian streets.
The bank stated that the aforementioned policy is hoped to "reflect supply and demand," according to AP.
The news was received with enthusiasm by investors such as Talaat Mustapha Group and Sixth of October Development, who hope that the higher inflation might increase property sales in order to preserve purchasing power, according to The National.
Since the uprising of 2011, Egypt has not agreed to allow its currency to float freely and instead has been making devaluations, which have caused the reduction of Egypt’s foreign reserve by more than half.
Before Egyptian investors rejoice, however, economists have warned that the success of the new management of the currency is dependent on the extent to which the Central Bank will allow the fluctuation of the pound, according to The National.