The Egyptian Central Bank’s move to liberalize the exchange rate of the local currency against the US dollar and raise interest rates by 6 percent is expected to have both positive and negative effects on the country’s economy, according to experts.
A positive result is represented by the anticipated dollar flows into the Egyptian market, as experts pointed to the importance of good management to achieve the utmost benefit for the overall economy.
On the other hand, the high inflation rate caused by the currency devaluation is one of the main negative repercussions of the new decision.
Egypt is likely to receive financing amounting to $3 billion from the World Bank, as part of a financing package from the International Monetary Fund (IMF) with an expected value of $20 billion, according to Finance Minister Mohamed Maait.
Cairo and the IMF had agreed to increase the value of the financing program to $8 billion from $3 billion, in addition to about $1 to $1.2 billion from the Fund’s sustainability program.
Last week, the Central Bank announced that it would raise interest rates by 600 basis points and allow the exchange rate to fluctuate according to market mechanisms, bringing the dollar exchange rate to an average of 49.5 pounds in commercial banks after it had stabilized at 30.9 pounds for nearly a year.
Maait said goods worth $13 billion have been released since the first of January until now.
The demand for the dollar is expected to continue until the release of goods seized at Egyptian customs and ports, which some estimated at about $8 billion.
As the economy awaits positive indicators to push it towards sustainable growth, inflation rates last February were higher than expectations, as they jumped to 35.7 percent, ending a series of declines that began in October, driven mainly by the rise in food prices.
Data from the Central Agency for Public Mobilization and Statistics on Sunday attributed the increase to “a rise in the prices of the meat and poultry by 25 percent, cereals and bread by 14.2 percent, fish and seafood by 11.5 percent, and dairy, cheese and eggs by 12.8%, in addition to oils by 14.1%...”
Risk analyst at Nile Financial Leasing Company Zaher Khalif expected the inflation rate to continue to rise during the coming period as a result of the devaluation of the pound.
