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Egypt's central bank floats pound to get IMF aid

Egypt's blue-chip index has soared after the central bank devalued the national pound by around a third. The lender also raised interest rates as part of a package of measures to ease the current dollar crunch.

Egypt floated the country's pound Thursday as part of a raft of reforms to ease a dollar crunch and curb exorbitant black market trade that had threatened to grind some imports to a halt.

The decision by the central bank came as a surprise after officials had previously said they would only consider floating the currency once foreign reserves reached $25 billion (22.5 billion euros).

The lender said in a statement it had moved to "a liberalized exchange rate to create an environment for a reliable and sustainable supply of foreign currency."

Egypt had struggled to boost its foreign currency reserves in the political and economic turmoil following the January 2011 uprising that toppled former ruler Hosni Mubarak.

Stock market rally

The central bank's move followed comments last week from IMF chief Christine Lagarde claiming Egypt was undergoing a currency crisis and suggesting a quick devaluation to tackle a widening gap between the official and black market rates.

Watch video 42:30

After the storm: Egypt’s economy and a new beginning

Floating the Egyptian pound had long been seen as a prerequisite for qualifying for a $12-billion loan from the International Monetary Fund.

"In a few months we should expect to see a start of a recovery in economic activity," EFG Hermes economist Mohamed Abu Basha said in a statement.

Egypt's blue-chip equity index soared by 8.3 percent and sovereign dollar bonds rallied after the floating of the pound by the central bank, which also raised interest rates by 300 basis points.

hg/jd (Reuters, AFP)

 

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