The Event
On March 6, 2024, the Central Bank of Egypt (CBE) increased its main operation rate by 600 basis points to 27.75%, the third highest interest rate in sub-Saharan Africa. It also announced a shift from a fixed exchange rate system to a flexible one, its fourth attempt in three years to allow the forces of demand and supply to determine exchange rates. The objective is to restore economic stability by curbing inflation, which currently exceeds the CBE’s target by 22.8 percentage points and easing the shortage of dollars in the economy.
Additionally, the move towards a flexible exchange rate regime fulfils a requirement from the International Monetary Fund (IMF) to support the proposed expansion of Egypt’s existing $3 billion Extended Fund Facility (EFF) program.
Policy implications
Following the announcement, the Egyptian Pound quickly depreciated by 39% to E£50/$ from the E£30.9/$ reported on March 5, converging with the parallel market rate. This
