Egypt devalues pound by 14.3% as foreign currency inflows decline
CAIRO - Egypt's central bank said on Monday it had devalued the Egyptian pound by 14.3 percent to 8.95 to the US dollar to face "challenges" emerging from declining foreign currency inflows.
The bank has been battling an acute US dollar shortage over the past few months, with the local currency often trading at a rate of almost 10 pounds to a dollar on the black market.
The devaluation boosted sentiment on the stock market, with Egypt's benchmark EGX30 index rising 6.7 percent to 7,003.91 in midday trading.
The Central Bank of Egypt said the move to devalue the pound was aimed at adopting a "more flexible foreign exchange policy" that would be driven by demand and supply.
"This will resolve the exchange rate irregularities, resulting in a more regular and continuous flow of foreign currency," it said in a statement.
The move would also help face "challenges from a noticeable decline in foreign currency inflows from tourism, direct investment and remittances from Egyptians living overseas".
Tourism, a cornerstone of the Egyptian economy and a key foreign exchange earner, has been severely hit by years of political turmoil triggered since the fall of longtime leader Hosni Mubarak in 2011.
It was dealt a body blow with the bombing of a Russian passenger airliner over the Sinai Peninsula on October 31 that killed all 224 people on board, mostly Russian tourists.
The jihadist Islamic State group said it blew up the plane with a bomb on board.
Revenues from tourism slumped 15 percent year-on-year to $6.1 billion in 2015.
Egypt's foreign exchange reserves have fallen from more than $36 billion in 2010 to about $16 billion, despite some $20 billion given in aid to Cairo by its powerful Gulf allies.
But the bank said the reserves would reach $25 billion by the end of 2016 on the back of "foreign investments and an increase in the competitiveness of the Egyptian economy".