The Central Bank of Egypt (CBE) announced on Wednesday it would allow the value of the Egyptian pound (EGP) to decline gradually over the coming months should demand for the currency recede.

However, the bank said it was not targeting a specific exchange price.

"We don't target prices. It is a supply-and-demand driven market," Deputy Governor Hisham Ramez told Reuters by telephone. "This does not mean that we are allowing devaluation. We see that the currency market is very stable and functioning very well."

"The Central Bank of Egypt will intervene only when there is imbalance or speculation,” he added.

He was speaking before Moody's said it had downgraded Egypt’s foreign and local currency government bond ratings by one notch to Ba3 from Ba2.

The central bank intervened on February 8 after the currency weakened to 5.960 to the dollar, a six-year low.

Analysts believe the value of EGP declined due to the impacts seen on major sources of demand, such as tourism and foreign investments, following weeks of mass protests that kicked off on 25 January and forced former President Hosni Mubarak to resign on 11 February.

The analysts said that the EGP moved down by 1.8 percent against USD since the revolution erupted.

Hisham Ezz al-Arab, managing director at Commercial International Bank (CIB), said EGP’s rate of exchange has usually been determined by demand ever since the currency was floated in 2003.

Ezz al-Arab told Al-Masry Al-Youm that allowing a gradual decrease for EGP does not mean that the CBE will not interfere occasionally to provide  the required liquidity in pounds or dollars.

Meanwhile, Mohamed Abu Pasha, an expert at EFG Hermes, predicted the pound would sag to 6.30 against the dollar by the end of 2011.

Translated from the Arabic Edition