There has been a significant shift in Egypt’s economy recently. The Central Bank of Egypt has taken two major decisions that are making headlines. The first one is that the interest rates have been raised by 6%. The second decision is that the Egyptian pound has been allowed to float freely against the US dollar. Additionally, local banks have been directed to open up the limits on foreign currency credit card usage.

Background

But why did the Central Bank of Egypt take such drastic measures? The primary reasons are to control the rampant inflation, which is currently at a staggering 29.8%, and to eliminate the black market for dollars, which has been thriving in recent months.

Expected Effects

These decisions are expected to have several effects. First, the interest rates will go up, which would make it more expensive for individuals and businesses to borrow money. Secondly, with the Egyptian pound floating freely, it is likely to depreciate against the US dollar. This could have a significant impact on the prices of imported goods. However, these measures could also bring down the soaring inflation rate and eliminate the black market for dollars.

Risks Involved

While these measures could potentially stabilize the economy, there are risks involved. Higher interest rates could slow down economic growth as borrowing becomes more expensive. A weaker Egyptian pound could make imports, on which Egypt heavily relies, more expensive. However, the Central Bank of Egypt views these as necessary risks to bring about long-term economic stability.

Detailed Overview

Some additional details about these decisions highlight their significance. The interest rate hike is the largest in Egypt’s history. Since February 2024, the Central Bank of Egypt has raised interest rates by a total of 8%. The Egyptian pound has lost about 50% of its value against the US dollar since the start of 2022. The thriving black market for dollars is a clear indicator of the people’s attempt to protect their savings from the depreciating currency.

Future Outlook

It is important to note that these are just short-term measures. The Central Bank of Egypt is also working on longer-term reforms to address the underlying causes of inflation and the black market for dollars. While these decisions could have a significant impact on the Egyptian economy, it is too early to predict the long-term effects.

In conclusion, the recent economic decisions by the Central Bank of Egypt are bold and unprecedented. They may pose some short-term challenges, but the aim is to achieve long-term economic stability. The world will be watching closely to see how these measures impact Egypt’s economy in the coming months and years.