Egypt lets pound plunge to record lows, closing in on IMF deal
By Nafisa Eltahir and Jana Choukeir
CAIRO/DUBAI (Reuters) -Egypt's pound hit a record low on Wednesday after the central bank said it would let the currency trade freely and hiked rates by 600 basis points at an unscheduled meeting, taking steps to stabilise the economy with help from Gulf investment and IMF funds.
The currency weakened after the markets opened to beyond 50 pounds to the dollar from about 30.85 pounds, a level Egypt has for months tried to defend.
A more flexible exchange rate is a key demand of the International Monetary Fund, which officials have signalled is close to confirming an expansion of its current, $3 billion support programme with Egypt.
Analysts welcomed Wednesday's steps, saying they paved the way for the deal with the fund.
The country's state-linked Al Qahera News cited an unnamed, senior official as saying an agreement would be signed within hours.
Egypt has in the past said it would shift to a more flexible exchange rate, only to return to closely managing the currency whenever the pound weakened.
This time, it may be betting that hard currency inflows from investment projects including a $35 billion investment deal signed in late February with the United Arab Emirates will prevent a freefall.
Egypt has been suffering from a chronic shortage of foreign currency. The central bank said its actions were «backed by the steadfast support of multilateral and bilateral partners» and that «sufficient funding has been secured to avail foreign exchange liquidity».
After the announcement, Egypt's international bonds soared, with longer-dated bonds gaining around 4 cents before giving away some gains. By 1200 GMT, 2049 bond was up 2.3 cent at 83.25 cent, according to Tradeweb data.
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