The Central Bank of Egypt (CBE) decided on Wednesday morning to let market forces determine the value of the Egyptian pound (EGP) as part of its commitment to transitioning to a flexible exchange rate system aimed at inflation.
The step aims to unify the exchange rates and eliminate foreign exchange backlogs following the closure of the spread between the official and the parallel exchange rate markets, the bank said after a special meeting of its Monetary Policy Committee.
The domestic economy has been recently weighed down by foreign exchange shortages, resulting in the existence of a parallel exchange rate market and constraining economic growth, noted the CBE.
Despite the decline of the annual inflation figures, they are expected to remain substantially above the CBE’s inflation target of seven percent (±2 percentage points) on average in 2024 Q4.
Coinciding with this, external spillovers emanating from global inflationary pressures have continued to accumulate as the world economy witnesses successive shocks. Such shocks elevated risk-off sentiment and inflation expectations, amplifying underlying inflation, it continued.
The resulting exchange rate movements and significant passthrough of international commodity prices, coupled with domestic supply shocks, have resulted in persistent inflationary pressures driving headline inflation to record levels, it added.
