CAIRO, March 7 (Xinhua) -- Egypt's decision to liberalize the exchange rate and raise interest rates by 6 percent was an inevitable path expected to resolve the country's dollar crunch and eliminate the parallel currency market, according to Egyptian experts.
The experts also said these measures were necessary to control high inflation rates, and then restore the stability of the Egyptian economy.
On Wednesday, the central bank raised its interest rates by 600 basis points and said it would allow the exchange rate to be determined by the market.
Following the move, the value of the Egyptian pound declined by about 60.1 percent, reaching 49.5 pounds against the U.S. dollar, bringing it almost in line with the black market rate.
Over the past two years, Egypt's dollar shortage has led to the devaluation of the local currency and the emergence of the parallel market in the country, plunging Egypt into one of its worst economic crises.
The crisis was deepened after the Hamas-Israel conflict broke out late last year, impacting the country's tourism and halving its revenues from the Suez Canal.
Solving the U.S. dollar crisis and eliminating the black market are the main concerns of the Egyptian government, said Karim al-Omda, Egyptian economic expert and lecturer at the Arab Academy for Science, Technology and Maritime Transport.
The dual pricing for the U.S. dollar can not continue as it disrupts Egypt's investments, and suspends production and trade activities, he said.
Al-Omda expected the Egyptian pound would weaken against the U.S. dollar in the next two weeks before stabilizing and improving, which could help to attract remittances from Egyptians abroad, eliminate the parallel market, attract foreign investments, and control high inflation.
However, the economist noted that the bank's measures alone are not sufficient to address all economic woes, emphasizing the importance of effectively managing cash and investment flows, ensuring favorable returns on government investment proposals, and wisely managing state resources.
Egyptian economist and member of the Egyptian Association for Political Economy, Statistics, and Legislation, Waleed Gaballah, said that the Egyptian government has taken a number of preliminary steps to reach a situation in which a decision on exchange rate liberalization can be taken.
Among the most important of these steps is the signing of a number of direct investment agreements, including the Ras Al-Hekma agreement, through which 10 billion U.S. dollars were pumped into the Egyptian economy immediately, he told Xinhua.
On Feb. 23, Egypt and the United Arab Emirates (UAE) reached a deal to develop Ras Al-Hekma, a 170-square-km area west of Egypt's Mediterranean city of Alexandria, into a new massive urban, business and tourism center.
Under the deal, the UAE will inject 35 billion U.S. dollars in foreign direct investment into Egypt over the next two months. ■
