CBE Governor: Egypt Follows Flexible Exchange Rate, Cannot Fix Currency

The governor of the Central Bank confirmed that Egypt is following a flexible exchange rate policy and cannot currently fix its currency.

"Egypt cannot fix its exchange rate. It currently follows a flexible exchange rate policy governed by supply and demand, like global currencies," said Hassan Abdullah, Governor of the Central Bank of Egypt, in a speech at a dinner hosted by the Federation of Saudi Chambers of Commerce in Cairo on Saturday.

In early March of last year, Egypt allowed the Egyptian pound to depreciate by approximately 40% to around 50 pounds against the dollar, in an attempt to halt a two-year crisis. It also decided to adopt a flexible exchange rate for the pound against foreign currencies based on market supply and demand.

Hassan Abdullah said that Egypt's macroeconomic situation has "improved significantly compared to the past and is witnessing stability." He emphasized that the Egyptian sector "enjoys sufficient liquidity to ensure the provision of banking products and facilitate investment flows."

Implementing a flexible exchange rate policy was one of the key conditions set by the International Monetary Fund (IMF) to increase the size of its financing program to the country from $3 billion to $8 billion to help it overcome a foreign exchange crisis. Egypt has already received four tranches of the financing program, the most recent of which was last month.

Credit rating agencies have assigned a "positive" to "stable" outlook to the country's future rating, based on the economic reforms it has undertaken since March 2024.

In its report issued yesterday, S&P Global Ratings said that Egypt "has implemented a series of reforms since liberalizing the exchange rate regime in March 2024. Over the past year, the foreign exchange market has been largely driven by market forces, supporting competitiveness and improving economic growth." 

It said that the Egyptian authorities' commitment to maintaining a market-determined exchange rate will support growth prospects and strengthen public finances during fiscal years 2025-2028.

It emphasized that "increased exchange rate flexibility" would drive growth and fiscal revenues and help contain external pressures.

Fitch, in its report also issued yesterday, said that Egypt "has maintained greater exchange rate flexibility since the devaluation of the official exchange rate in March 2024, with no significant foreign exchange demand buildup or mismatch with the parallel market rate."

 It noted that "measures to manage foreign exchange demand contribute to justifying the very low exchange rate volatility."

Last November, an International Monetary Fund mission to Egypt reported that the Central Bank "reaffirmed its commitment to maintaining a flexible exchange rate regime" to protect the economy from external shocks, while praising the key reforms Egypt has implemented to maintain macroeconomic stability. 

The Fund noted that the unification of the exchange rate since last March has "eliminated the cumulative demand for foreign exchange and eased imports."