Egypt’s blue-chip stock index soared in early trading on Thursday after the central bank said it was floating the Egyptian pound in an effort to end a hard-currency shortage that has plagued the economy for several years.
The EGX 30 index jumped 8.3 per cent with many stocks rising their 10 per cent daily limits. The broader EGX 100 gained only 3.6 per cent, however. The central bank said it had floated the pound and hiked interest rates by 300 basis points to rebalance currency markets. Bankers said they had been informed that the central bank would set an initial guidance rate of 13 pounds to the dollar at a sale at 1pm local time, compared to the previous official rate of 8.88 pounds.
The central bank also said in a statement that it would abolish the priority list for imports and phase out monetary financing of the budget deficit over coming months.
“This is very encouraging news. The stock market would love this news because the bottleneck has finally been relieved,” said a Dubai-based analyst.
An equities trader in Cairo said before markets opened: “There is a wave of buy orders we are receiving at the moment. I think this will outdo the rally in March.”
In mid-March, the central bank devalued the pound to 8.85 per dollar from 7.73 and simultaneously pumped nearly US$200 million into the dollar-starved banking system. The stock market rallied 6.7 per cent in very heavy trade that day.
Economists believe a more flexible exchange rate mechanism could help unlock billions of dollars in foreign investment.
The Dubai analyst, however, said that some foreign investors were likely to remain cautious about putting money into Egypt for now until they saw how well Egyptian authorities managed the float, and because of uncertainties overhanging emerging markets such as the US presidential election.
Egypt is seeking a $12 billion loan from the IMF, which has said publicly that the government should act on the exchange rate and subsidies. Egypt’s pound has repeatedly weakened to a record in the black market in the past month, as pressure increased on the government to devalue. The currency depreciated to 17.98 per dollar in Bloomberg’s most recent survey of currency dealers, taking its decline this year to 52 per cent in unofficial trading.
The exchange rate will now be set by “supply and demand”, said the governor Tarek Amer. In a statement on its website, the central bank said the measures would help end a black market.
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