[News] The Egyptian pound is on the cusp of a record drop before the Monetary Fund agreement

[Mr.Bada]

                            Link

Economists expected that the Egyptian pound will continue to decline rapidly in the coming days, to reach historical low levels, in a preliminary step, before the imminent agreement on a loan from the International Monetary Fund. The Egyptian currency is witnessing an accelerated decline in the recent period, and it reached on Wednesday about 19.4 pounds to the dollar, becoming a few cents away from breaking its historical level recorded in December 2016, which amounted to 19.51 pounds, following the flotation of the pound in November of the same year. Since the beginning of this year, the Egyptian pound has lost about 23 percent of its value, after remaining almost stable in the last two years, in conjunction with the exit of billions of dollars from the Egyptian market, and the sharp rise in import costs, especially food and energy, against the background of the Russian-Ukrainian crisis.After the new Central Bank Governor, Hassan Abdullah, assumed his position on August 18, succeeding Tariq Amer, who resigned, the Egyptian pound witnessed declines of several piasters per day, at a rate that has so far reached about 1.2 percent. The expectations of investment banks and economists who spoke with “Sky News Arabia” indicate that the Egyptian pound is heading to decline to a level ranging between 21 and 22 pounds during the coming period, which is an unprecedented historical level for the Egyptian currency.Hani Genena, an economist and lecturer at the American University in Cairo, said, "The current pace of the pound's decline cannot be considered gradual, as it is a rapid decline, but it seems that the central bank does not want to float once." “It is better for the central bank to reduce the pound once, so that it allows the entry of foreign cash flows that are waiting for this step, and so that it can obtain the approval of the Executive Board of the Monetary Fund for the loan during the current month, and this matter will not happen until the black market is eliminated and the dollar price is unified. Inside and outside banks,” Geneina said in exclusive statements to “Sky News Arabia.” Geneina added, "The Egyptian market is currently pricing the dollar at a level between 22 and 22.5 pounds, and it is better to speed up the devaluation of the currency." Until we reach this level, as the fair price of the pound according to the purchasing power parity ranges between 22 and 23 pounds.” Noman Khaled, a macroeconomic analyst at Arqaam Capital, said that it is necessary to accelerate the pace of devaluation of the pound during the coming days, in order to reach the level currently targeted by the market between 21 and 22 pounds to the dollar, so that Egypt can obtain an IMF loan and proceed with procedures Facing current economic challenges. "It is difficult for the Central Bank of Egypt to continue devaluing the pound at this current pace, because this may take 3 or 4 months in order to reach the level of 22 pounds, especially since this situation raises tension in the import movement and disrupts goods in the ports, and delays the entry of foreign flows," according to him. What Khaled said in exclusive statements to "Sky News Arabia". “The central bank may not tend to repeat the flotation scenario at once, as happened in 2016.But at least the pace is faster by 20 piasters or more every day, as the flexibility of the exchange rate is a prerequisite for approval of the IMF loan, which must not be less than 7 or 10 billion dollars in order to realistically contribute to closing the financing gap between 30 and 35 billion dollars in addition to the funds that will come from other parties, especially the Gulf countries,” Khaled said. Khaled indicated that "this gradual reduction may be aimed at giving citizens a signal about the currency's path in the coming period, and therefore when it accelerates the reduction process, it will not be surprising compared to moving from a fixed position for a long time." Wael Ziada, Chairman of the Board of Directors of Zilla Capital Investment Company, told "Sky News Arabia" that in light of the rise in the dollar index against the rest of the world currencies, by more than it rose against the Egyptian pound, "we are in front of a currency that is valued more than its value, and therefore it is necessary to to go down." He pointed out that the price that is being traded on the black market or in the pricing of some commodities such as gold ranges between 21 and 22 pounds, and therefore this level may be the exploratory price targeted by the market. Ziadeh added that what is currently happening is that the Central Bank and the government are discussing how to introduce flexibility in the exchange rate in a way that helps maintain social stability and price control.And the Egyptian Minister of Planning, Hala Al-Saeed, said in an interview with "Bloomberg" last week, that "the government agrees that the flexible exchange rate will certainly be beneficial to the economy." Ziadeh rules out that the Central Bank of Egypt will go to "full flotation," explaining that most countries of the world interfere in the exchange rate in one way or another, adding that "full flotation in the situation of a country like Egypt ... would be a mistake from an economic point of view." A member of the board of directors of one of the Egyptian private banks, who preferred not to be named, said that “the gradual devaluation of the pound indicates that there is a specific target that must be reached in the short term,” and that this may be within the framework of understandings with the IMF, with the aim of finding flexibility in The exchange rate is reduced by a certain percentage. He added that decreasing the pound in this gradual manner is the best scenario, "there is no interest in decreasing the pound immediately, so as not to severely affect inflation." A member of the board of directors of the private bank believes that the CBE will leave the pound to decline at this gradual pace, reaching the level of 20 pounds to the dollar, and then leave the price to the market according to supply and demand factors, which may find support from obtaining a fund loan and entering foreign direct investments.For his part, Ali Metwally, economist and risk analyst at London-based Infospectrum Consulting, said in statements to “Sky News Arabia” that the pound is likely to continue declining at a faster pace in the coming days, up to the level that the market currently estimates at 22 pounds. dollar by the end of the year, in order for Egypt to obtain the loan of the International Monetary Fund, and at the same time, the central bank avoids a major inflationary shock in the event of an immediate flotation.