by Mahmoud Fouly
CAIRO, March 11 (Xinhua) -- The recent decisions of Egypt's central bank to float the country's local currency and raise the interest rates by 6 percent seek to curb the rising inflation and stabilize the currency exchange market, said Egyptian economist Fakhri al-Fiqi in a recent interview with Xinhua.
"These bold decisions aim to reduce inflation and rising prices within one year until inflation rates decline to the central bank's target of a single-digit number," al-Fiqi, an economics professor and head of Egypt's parliamentary planning and budget committee, explained.
Egypt has been struggling to curb rising urban inflation which reached 35.7 percent in February compared to 29.8 percent in January, according to a report released by Egypt's Central Agency for Public Mobilization and Statistics (CAPMAS) on Sunday.
Describing the 6-percent interest hike as "unprecedented," the expert said it aims to reduce inflation "in the shortest time possible to alleviate the negative effects of high prices on the social fabric," noting that high inflation "makes the rich richer and the poor poorer."
Al-Fiqi pointed out the interest rate hike will remain for a certain period until inflation is contained, then the central bank will start lowering it again.
"The second goal of the CBE's measures is to unify and stabilize the exchange rate to reflect its true value in the Egyptian economy," the Egyptian economist told Xinhua.
Al-Fiqi said that the full floatation of the Egyptian pound was supported by a foreign cash inflow, including a 35-billion-dollar investment deal Egypt signed with the United Arab Emirates in late February to develop a new resort city, Ras Al-Hekma, on Egypt's northern coast.
Another foreign currency inflow is the 8 billion dollar loan provided by the International Monetary Fund (IMF), which finalized the deal soon after the CBE announced the currency's full floatation and interest hikes.
Egypt's Finance Minister Mohamed Maait expected the IMF deal to pave the way for his country to receive over 20 billion dollars in additional funding from other partners, including the World Bank, the European Union, the African Development Bank, the Arab Monetary Fund and others.
"When the currency exchange market stabilizes and the accumulation of goods at Egyptian ports due to shortage of foreign currency ends, the dollar exchange rate will begin to gradually decline towards its real price," said the Egyptian economist.
He added that while the dollar is currently exchanged for about 50 Egyptian pounds, its true value, provided sufficient cash is available and sustainable, varies between 35 and 40 pounds, noting that Egypt needs about 6.5 billion dollars monthly for imports.
Al-Fiqi suggested enhancing manufacturing and expanding the role of the private sector in the economy as strategies for addressing the challenges of dollar scarcity and persistent inflation in the future.
