CAIRO: Egypt’s central bank said on Wednesday that it had hiked interest rates by 600 basis points at an unscheduled meeting and that it would allow the exchange rate to be set by market forces as it shifted to an inflation targeting regime.

Egypt’s pound fell sharply against the dollar as the markets opened, tumbling past 40 pounds to the dollar from about 30.85 pounds previously.

The country’s international bonds soared, with longer-dated bonds enjoyed the biggest gains, with the 2047 bond enjoying the biggest gains, up 2.6 cents at 82.3 cents, Tradeweb data showed. 

The premium demanded by investors to hold Egypt’s international bonds over safe-haven US Treasuries tightened to 534 basis points, its lowest level since June 2021, according to data from JPMorgan.

The central bank announced that it had raised the overnight lending rate to 28.25 percent and its overnight deposit rate to 27.25 percent, as part of a decision to accelerate monetary tightening and ensure a decline in underlying inflation.

“To ensure a smooth transition, the CBE will continue to target inflation as its nominal anchor, allowing the exchange rate to be determined by market forces,” the central bank said in a statement.

“The unification of the exchange rate is crucial, as it facilitates the elimination of foreign exchange backlogs,” it said.

While the central bank has had an inflation target until now, it also sought to manage the pound, which has been fixed at 30.85 to the dollar over the past year as the central bank has sought to defend its value amid a chronic shortage of foreign currency.

In late February, the government signed a major investment deal with the UAE that eased pressure on the Egyptian pound on the black market.