01:58 PM
Saturday, March 25, 2023
I wrote – Manal Al-Masry:
3 international banks unanimously agreed on the expected possibility of a new decline in the exchange value of the pound against the dollar, with the continued pressure on the provision of foreign currencies and the slow entry of new cash flows.
HSBC, Societe Generale, and Credit Suisse banks suggested a decline in the value of the pound, bringing the price of the dollar to between 34 and 40 pounds during the current year 2023, according to reports issued to them earlier.
The three international banks indicated that the main reasons for the expected decline in the value of the pound against the dollar are the slow implementation of the offering program, i.e. the state’s exit from shares owned by it in 32 companies and banks, as well as the continued high rate of inflation – an increase in prices – which is one of the factors pressuring the pound. .
They also said that among these reasons is also what they described as not adhering to a fully flexible exchange rate that reflects the real exchange value of the Egyptian pound to attract new investments, in addition to the lack of a real return on investment in the Egyptian pound, after increasing the negative return rate to 15%.
HSBC Bank
The HSBC Group, which is one of the international banks, issued a recent report last week about adjusting its future view of the pound’s exchange rate against the dollar to be more pessimistic during the current year.
HSBC expected that the average price of the dollar during the year would reach 37.5 pounds, and that the price of the dollar would range between 35 and 40 pounds, instead of previous expectations two months ago, when the pound would trade between 30 and 35 pounds, with an average price of 32.5 pounds.
And under the title “3 major barriers that must be removed,” HSBC Bank said, in its report, that the Egyptian economy faces 3 main challenges that increase pressure on the exchange rate of the pound against the dollar during the current year 2023.
The first challenge: the importance of having a flexible exchange rate for the pound against other foreign currencies, which is an essential part of the agreement that Egypt signed with the International Monetary Fund late last year.
Weak inflows and accumulated demand for dollars could lead to the pound – temporarily – exceeding the range of expectations, although a flexible exchange rate means that there can be no shortage of foreign currency.
The second challenge: the slow pace of asset sale deals with Gulf partners represents a challenge for Egypt, as the asset sale program and the commitment to sell stakes in 32 state-owned companies and financial institutions are “complicated to implement” although it is a major component of the International Monetary Fund’s program.
According to the report, proceeds from asset sales, which attracted strong interest from GCC countries and beyond, should help ease balance of payments pressures, and are expected to gain momentum once the process begins.
The third challenge: the lack of a real return on savings in the Egyptian pound, as the real return was negative 15% compared to the high rate of inflation and the prevailing rate of return.
He expected the Central Bank to raise interest by 3% at the next meeting next Thursday.
Societe Generale Bank
Societe Generale, a French international bank, expected a 10% decrease in the pound’s price against the dollar, to reach 34 pounds by the end of March 2023, compared to its current level.
In a report last month, the bank attributed the reasons for its expectations of the pound’s decline to the fact that Egypt will need a cheaper currency due to the current account deficit – which includes total dollar inflows minus liabilities – and the lack of dollar inflows.
The bank also believes that real interest rates are still negative on the basis of looking back and the future, as when foreign indirect investment flows resume in Egyptian debt instruments (Treasury bills and bonds), the central bank will need to give priority to rebuilding its foreign currency reserves, and this will put additional pressure on pound.
Credit Suisse bank
Credit Suisse expected, in a report this month, that the price of the pound would decline during the coming period in the short term, bringing the price of the dollar against it to the level of 35 pounds.
The bank believes that keeping the central bank on interest rates stable in February 2023 in the face of accelerating inflation led to an increase in its fears due to a negative return on investment in the pound.
However, Credit Suisse expected the possibility of a positive real return on investment in the Egyptian pound in the coming months, with the decline in inflation and the central bank’s tendency to raise interest rates.