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Two years since currency floatation - Daily News Egypt

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Two years since currency floatation

Foreign exchange reserves up by $25bn, hard cash flow increased, inflation declined, external debt $92.6bn

The Egyptian market has witnessed many important developments over the last two years since the Central Bank of Egypt (CBE) has decided to liberalise the local currency on 3 November 2016, notably the rise of foreign exchange reserves by $25bn and the decline of inflation.

Foreign exchange reserves

The decision to liberalise the local exchange rate contributed to increasing foreign exchange reserves up to $44.4bn at the end of September 2018, compared to $19.5bn in October 2016, marking an increase of about $25bn.

This increase was partially driven by a rise in hard cash flow and external loans. The increase of remittances from Egyptian expatriates from $17bn before the CBE’s decision to $26.5bn in the fiscal year (FY) 2017/18 also had an effect.

The remittances are among the most important sources of foreign currency in Egypt, which became even more important following the flotation, along with the Suez Canal and revenues from the tourism industry.

Foreign exchange resources 

According to the CBE’s governor, Tarek Amer, Egypt’s hard cash flow registered $150bn since the decision to float Egyptian pound until August 2018.

Amer pointed out that these funds contributed to financing national megaprojects which led to a significant increase in economic growth rates.


Following the CBE’s decision, the foreign exchange rate increased by 48% reaching EGP 13.5 against the dollar in the wake of the flotation. The interest rate continued rising to EGP 18.6 at the end of November 2016, then to EGP 19.52 at the end of December 2016, marking the highest rate of the dollar to the Egyptian pound.

During the last few months, the dollar remained almost stable at EGP 17.5-18.5 with minor volatility.


The CBE was prepared to curb any inflation hikes following its decision, relying on its monetary policy tools which managed to keep its rate at 8.6% at the end of September, down from 34.2% in July 2017 and 14.6% in September 2016.

Interest rates

To curb inflation, the CBE resorted to raising interest rates by 5%. The CBE increased interest rates on overnight deposits and lending by 300 basis points, to reach 14.75% and 15.75% respectively.

When inflation hit a record jump of 34.2% in July 2017, the CBE again increased interest rates by 200 basis points to reach 18.75% for overnight deposits and 19.97% for lending to ease the inflationary pressure caused by energy price hikes.

After the policy of raising interest rates gave positive results regarding inflation, the CBE cut interest rates by 1% to 17.75% for deposits and 18.75% for lending. In March, the CBE cut interest rates by another 1% to record 16.75% and 17.75% respectively. The rates have been unchanged since.

Prior to the flotation, interest rates were at 11.75% for deposits and 12.75% for lending.

Public debt

The size of the external debt amounted to $92.6bn at the end of June 2018, up from $67.3bn before the flotation. Internal debt recorded EGP 3.7tn at the end of June, up from EGP 2.5tn before the decision.

Growth rate

The economic growth rate reached 5.3-5.4% during the last two quarters of FY 2017/18, up from 4% before the flotation.

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