The local gold market experienced a sharp rise in prices and a state of confusion on Wednesday, following the decision of the Central Bank of Egypt (CBE) to let the exchange rate be determined by supply and demand. This coincided with a 6% increase in interest rates to curb high inflation.
Saeed Embabi, CEO of iSagha, an online platform for selling gold and jewelry, said that gold prices increased by about EGP 220 during today’s trading, compared to the end of yesterday’s trading. The price of one gram of 21-carat gold reached EGP 3,200. He noted that the market was facing uncertainty in pricing after the devaluation of the pound against the US dollar, which exceeded EGP 50 in banks. He added that one gram of 24-karat gold recorded EGP 3,657, one gram of 18-karat gold recorded EGP 2,743, and one gram of 14-karat gold recorded about EGP 2,134. One gold pound recorded EGP 25,600, while ounces increased by about $7, reaching a level of $2,134.
Embabi explained that CBE’s decisions today would stabilize the exchange rate, eliminate the black market, and reduce inflation. He pointed out that unifying the exchange rate would also help attract foreign investments, as well as ensure the return of remittances from Egyptians working abroad, which had declined significantly over the past year. The Monetary Policy Committee (MPC) of CBE decided in its extraordinary meeting to raise the overnight deposit and lending rates and the central bank’s main operation rate by 600 basis points to reach 27.25%, 28.25%, and 27.75%, respectively. The credit and discount rates were also raised by 600 basis points to reach 27.75%, as the monetary tightening policy continued to be implemented, according to CBE’s statement today. CBE affirmed its commitment to continue its efforts to move towards a flexible framework for inflation targeting, by maintaining inflation as the nominal anchor of monetary policy while allowing the exchange rate to be determined by market forces. Unifying the exchange rate is a vital step, as it eliminates the excess demand for foreign currency resulting from the gap between the official and parallel market exchange rates.
According to the statement, MPC believes that the decision to raise key interest rates by 600 basis points would help contain monetary conditions in line with the plan to lower inflation rates.