The central bank has remained silent about its motivations.
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Egypt's revaluation of the pound this week has raised expectations of a major shift in how it manages a long-running currency crisis, with evidence growing that the central bank may be preparing for a more flexible exchange rate mechanism.However, Wednesday it strengthened the pound by 2.5 percent, the first such move since 2013, and injected $1 billion into the economy.Egypt's outgoing central bank governor Hisham Ramez has battled for months to defend the pound, with most bankers saying that he could not hold out indefinitely with foreign reserves at $16.4 billion – enough for only three months of imports. After the revaluation, bankers struggled to explain why the central bank had intervened to strengthen an already overvalued pound, taking it to 7.73 per dollar and holding it the next day.Like Williams, Genena expects the central bank to encourage a period of volatility, with attractive interest rates on pound deposits drawing onetime speculators to this safe haven.He then expects the central bank to begin shepherding the pound down to a level closer to its market value – the dollar traded at 8.6 pounds on the black market Thursday – but within a broader band, allowing greater flexibility and easing pressure on the foreign reserves.Many bankers say, however, that the central bank does not have enough foreign reserves to manage such a dramatic shift and could fall prey to speculators betting against the pound if it tries to maintain the new rate or otherwise sway the market.
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