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Three-year anniversary of Egypt’s free floating exchange - Daily News Egypt

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Three-year anniversary of Egypt’s free floating exchange

FX reserves up by $25.618bn, exchange rate and inflation fall, and public debt rises

Egypt will mark three years on Sunday since the application of free floating exchange system on 3 November 2016.

During the past three years, the Egyptian market witnessed many important developments, as the foreign exchange reserves increased by about $25.618bn, the US dollar exchange rate declined against the Egyptian pound from EGP 19.52 in December 2016 to around EGP 16, and the inflation fell to its lowest level in about six years, while the public debt, both external and internal, saw a significant increase.

At the level of foreign exchange reserves, the decision to float the exchange rate has contributed to increasing it from $19.5bn at the end of October 2016 to $45.118bn at the end of September 2018.

The increase in the size of the reserve thus contributed to Egypt’s access to strong cash flows and loans from abroad, most notably a $12bn extended facility from the International Monetary Fund.

According to the Governor of the Central Bank of Egypt (CBE), Tarek Amer, the volume of foreign exchange inflows has been around $200bn since the floatation in June 2019.

With the increase in the flow of foreign exchange in the Egyptian market, the price of the US dollar went down significantly against the Egyptian pound, especially during 2019, losing some 178 piasters since the beginning of this year until the end of October.

The exchange rate has hiked by 48% after the floating, reaching EGP 13.5 per US dollar on the morning after the float, before rising to EGP 18.16 at the end of November 2016, then to EGP 19.52 at the end of December 2016, marking its highest level ever.

As for the level of inflation, it witnessed a significant decline in 2018 and 2019, for the annual rate of core inflation to reach 2.6% at the end of September, while headline inflation scored 4.3%, which is the lowest since April 2006.

This level of inflation was compared to about 14.6% in September 2016, and 34.2% in July 2017.

After the floating decision, the CBE raised local interest rates by 5% to contain the inflation, to record 18.75% for deposit and 19.75% for lending.

After the policy of raising interest rates achieved positive results on the level of inflation, the CBE reduced it by 5% to 13.25% for deposit and 14.25% for lending.

However, there was a significant increase in the public debt, both external and internal.

At the level of external debt, the figure has reached about $108.7bn at the end of June 2019, against $67.3bn before the floating, rising by $41.4bn.

The size of domestic debt also increased by EGP 1.7trn to EGP 4.204trn at the end of March 2019,  from EGP 2.5trn before the floating.

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