Central bank devalues Egyptian Pound, will raise interest rates by 14.75 percent

The Egyptian pound underwent devaluation on Thursday, November 10, 2016, to close at 13 pounds to a US Dollar after the countrys central bank decided to implement a floating unit policy in an attempt to stabilise the economy.

The currency dropped a third of its value after the decision to unpeg it from the 8.8 Egyptian pound per Dollar put in place in March. It has since dropped by more than 50 percent.

Stock in the country reacted by jumping to an eight year all-time high as investors moved swiftly in anticipation of Egypt securing a $12 billion loan from the International Monetary Fund (IMF) to boost its languishing economy.

Egypt is yet to recover from the Arab Spring which ended in January 2011 and left its economy battered - something the North African country is trying to combat by boosting investor confidence.

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“We have been expecting this for a long time and it is very positive. We expect a lot of interest in Egypt, it’s a massive economy that has been put on hold for year,” Bloomberg quoted Rami Sidani, head of frontier investments at Schroders Plc on phone.

Egyptian President Abdel Fattah al-Sisi is also spearheading an austerity plan to cut government spending as part of the conditions for the IMF's loan.

The currency float will also boost Egypt's foreign reserves, months after a dollar shortage hit the country. As at September 2016, Egypt's foreign reserves stood at $19.6 billion, less than half the amount reported in early 2011, according to Middle East Eye.

The Egyptian central bank will also increase interest rates by at least 300 basis points to 14.75 percent as it tries to curb inflation. Egypt currently has an inflation rate of about 14 percent, the highest in seven years.