The price of the Egyptian pound has fallen against currencies and the US dollar at an increasing rate since the release of November 2016, losing more than 90% of purchasing power.
The exchange rate of the Egyptian pound against the US dollar fell to a new low on January 11 after touching 32.14 the dollar. The last significant depreciation of the currency occurred only a few months after it adopted a flexible exchange rate regime. According to the International Monetary Fund, the Egyptian monetary authorities have pledged not to intervene in the foreign exchange markets.
Flexible Exchange Rate Regime
Just a few months after falling more than 15% against the US dollar, the Egyptian pound hit a new low of more than 32 per dollar on January 11. According to a Reuters report, the latest depreciation of the pound has led some analysts to question how far the central bank wants the pound to fall.
As Bitcoin.com News reported in October 2022, the official pound exchange rate against the dollar fell from just under 20 units per dollar to 23.09 per dollar, after the Egyptian monetary authorities agreed to abandon the rate regime. fixed exchange rate. In return, Cairo would receive a financial package of 3,000 million dollars from the International Monetary Fund (IMF).
The Experts Share their Opinions
Following the currency’s latest slide, some Egyptian analysts quoted in the Reuters report believed that the pound had reached its lower bound. Others, such as Goldman Sachs’ Farouk Soussa, said it was still difficult to conclude that the pound’s exchange rate against the dollar had reached equilibrium.
“When portfolio investors start to come back, that’s when the market will have judged the balance. But there is no direct way to look at the balance,” Soussa said.
Monica Malik, an economist at Abu Dhabi Commercial Bank, said the latest drop in the pound alone does not guarantee that investors will return. The economist said that liquidating the accumulation of currencies could be a step that reassures investors. However, this requires new USD liquidity and, according to Malik, “there is currently no visibility where this liquidity will come from.”
Carla Selim, an economist at Standard Chartered plc, asserted that “the Egyptian pound will remain under pressure until more dollar inflows are achieved in the foreign exchange market, to match the dynamics of demand and supply of currencies.”
Experts expected that the pound is likely to be pushed beyond the final limit of devaluation before stabilization, during the process of closing the gap between the official and parallel markets.
Meanwhile, in the IMF’s Egypt staff country report, the global lender revealed that the Cairo government had promised not to intervene in currency markets. Under its agreement with the global lending institution, the Egyptian monetary authorities would only intervene in cases of excessive volatility.
By Audy Castaneda
