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A new economic era: IMF loan and new exchange rate explained

CBE has taken significant steps towards allowing the exchange rate to be determined by market mechanisms.
© Egypt Business Directory

In a recent development, Egypt's Central Bank (CBE) has taken significant steps towards allowing the exchange rate to be determined by market mechanisms. This decision, announced by the Monetary Policy Committee, aims to foster sustainable development while maintaining price stability.

Why the Shift?

The move towards a market-driven exchange rate is pivotal in eliminating the gap between official and parallel market rates, which accumulated demand for foreign currency. By unifying the exchange rate, Egypt aims to stabilize its currency and create a more transparent and efficient foreign exchange system.

Interest Rates Hike

Alongside this shift, the CBE has raised interest rates by 600 basis points, reaching 27.25 percent. This decision is aimed at tightening monetary conditions, aligning with the goal of reducing inflation rates. By controlling inflation expectations and ensuring positive real interest rates, the CBE aims to promote economic stability and growth.

IMF Agreement Extension

Egypt has also signed an agreement with the International Monetary Fund (IMF) to extend the current $3 billion loan deal to $8 billion. This agreement, part of the country's integrated structural reform policies, targets various economic indicators, including increasing foreign currency reserves, reducing debt, attracting foreign investment, and fostering economic growth.

Government's Economic Vision

Prime Minister Mostafa Madbouly emphasized that these economic measures are part of Egypt's domestic reform agenda, prepared in collaboration with the CBE. The government's vision includes increasing economic resilience, creating job opportunities, and strengthening social protection programs.

Partnerships for Growth

In addition to the IMF deal, Egypt aims to expand partnerships with development organizations like the World Bank and the European Union. These partnerships will provide soft loans to support Egypt's economic reforms and sustainable development initiatives. Furthermore, the government plans to boost private sector participation to drive economic growth.

Looking Forward

Egypt's recent economic decisions underscore its commitment to maximizing its assets and achieving monetary stability. By embracing market mechanisms, raising interest rates, and extending agreements with international partners, Egypt aims to navigate economic challenges and pave the way for sustained growth and prosperity.

In conclusion, Egypt's shift towards market-driven policies and its collaboration with international institutions signal a proactive approach to economic reform and development. These measures are expected to enhance economic stability, attract investments, and foster inclusive growth in the country.