The devaluation pegged the Egyptian pound at 13 to the dollar, up from nearly nine on the official market. A central bank auction of dollars will be held later on Thursday, allowing supply and demand to determine the value of the pound for the first time in decades.
The devaluation was virtually certain to cause a steep hike in prices, piling pressure on Abdel Fatah al-Sisi’s government to avoid a popular backlash against its handling of the economy.
Sisi has repeatedly urged Egyptians in recent weeks to rally behind him as he grapples with the country’s worst economic crisis in decades, arguing that there was no way out of the economic crisis unless Egyptians “endure and be patient.”
Sisi, a general turned president elected in 2014, has pledged to do all he can to protect Egypt’s poor from the inflationary fallout that is certain to come with economic reforms. Last week he said the military would distribute a one-off package of basic food items such as sugar and rice at half price among poor Egyptians.
Also on Thursday, the central bank raised by three percentage points its two key overnight interest rates.
The bank said the measures were part of the government’s reform programme and designed to “completely end” the unofficial currency market. The measures, it said, would “empower the Egyptian economy to face the present challenges, unleash its potential and achieve the hoped-for growth”.
“The floatation is an excellent, overdue step that, thank God, we took it,” the Egyptian business tycoon Naguib Sawiris wrote on Twitter. “We must all help to make this step a success.”
The much heralded central bank decision followed a sharp and sudden decline this week in the value of the dollar on the unofficial market, plunging from an all-time high of 18.25 pounds to about 13 to the US currency.