CAIRO (AP) — The Egyptian pound slipped further against the dollar on Wednesday, after Egypt’s Central Bank raised its main interest rate and devalued the currency by 14%.
The moves by the Central Bank of Egypt were meant to combat inflationary waves triggered by the coronavirus pandemic and Russia’s war in Ukraine, which hiked oil prices to record highs.
Banks were selling the U.S. currency at more than 18.5 pounds while buying it at over 18.45. By mid-day Wednesday, it was sold at 18.42 pounds and bought at 18.32. That’s up from an average of 15.6 pounds for $1 before the central bank’s decision on Monday.
The central bank increased the key interest rate by 100 basis points to reach 9.75%. The overnight deposit and lending rate were also raised by 100 basis points each to reach 9.25% and 10.25% respectively, the bank said.
The bank citied the war in Ukraine that has shaken the global economy and threatened food supplies and livelihoods of people across the world.
Economists have said the moves were likely signs that the government is working to secure another financing package from the International Monetary Fund.
Celine Allard, IMF’s mission chief for Egypt, welcomed the latest measures. saying in a statement Wednesday evening that “continued exchange rate flexibility will be essential to absorb external shocks and safeguard financial buffers during this uncertain time.”
Allard said the IMF was working with Egyptian authorities after they asked for its help to “implement their comprehensive economic program.” She did not provide further details.
The rising cost of basic goods has deepened the hardships facing middle-class and poor Egyptians. They have suffered from price hikes since the government embarked on an ambitious reform program in 2016 to overhaul the country’s battered economy.
The reforms were agreed on with the IMF for a $12 billion bailout. They included tough austerity measures such as slashing fuel subsidies and increases in prices of everything from subway fares to utility costs.
That has taken a heavy toll on most of the country’s 103 million-plus population; 29.7% of of whom live in poverty, according to official figures.
President Abdel Fattah el-Sissi on Wednesday hailed the reform program, saying it helped his government weather global challenges including the consequences of the war in Ukraine.
“Without this program … our situation would have been more difficult,” he said in televised comments.
Since the war in Ukraine, residents across the country have reported rises in the price of bread, fresh vegetables and fruit and other commodities amid fears of a global economic crisis. Egypt is the world’s largest wheat importer, and most of its imports come from Russia and Ukraine.
On Tuesday, Prime Minister Mustafa Madbouly said his office was working on reconstructing the 2022-2023 budget to be prepared for “the most pessimistic scenarios.”
Authorities also established mobile markets in public squares across the country that offer food and other commodities at discounted prices.
The government has taken steps to control prices hikes, including a 130 billion pound (over $7 billion) relief package. It said planned increases in pensions and salaries for civil servants would be applied starting in April rather than July.
It also set a new pricing system for unsubsidized bread after bakeries raised prices to up to 50%. Retailers who violate the government-set prices face a fine of up to 5 million pounds ($286,200).
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