On Thursday, as the government announced a $3 billion deal with the International Monetary Fund with a commitment to a ‘durably flexible currency rate regime,’ the Egyptian pound fell 13.5% to a record low versus the dollar.
In an out-of-cycle meeting, the central bank also increased interest rates by 200 basis points with the stated goals of stabilising inflation expectations and containing demand-side pressures.
Egypt had been negotiating a fresh loan with the IMF since March, when its economic problems worsened as a result of the conflict in Ukraine. The fund has urged Egypt to permit more currency rate flexibility for a long time.
The IMF stated that a flexible currency rate regime should be ‘a cornerstone strategy for restoring and protecting Egypt’s external resilience over the long run’ in a statement announcing a $3 billion, 46-month Extended Fund Facility.
According to the statement, the agreement was expected to spark a significant, multi-year financing package, including $5 billion in the fiscal year ending June 2023, indicating ‘widespread international and regional support for Egypt.’
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