Economy Expectations of an impending crisis for the pound ......

Expectations of an impending crisis for the pound … and Egypt today determines the fate of the interest

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Last updated: Thursday 8 Shaaban 1441 AH – April 02, 2020 KSA 10:08 – GMT 07:08
Posted on: Thursday 8 Shaaban 1441 AH – April 02, 2020 KSA 08:11 – GMT 05:11

Source: Cairo – Khaled Hosni

At a time when the Egyptian market is awaiting the fate of interest rates today, during the meeting of the Monetary Policy Committee of the Central Bank of Egypt, a recent report expected that the Egyptian pound will face a violent crisis against the US dollar, with the continuing repercussions of the spread of the emerging Corona virus pandemic.

The results of a survey conducted by the Enterprise magazine yesterday indicated that 11 analysts agreed that the central bank’s monetary policy committee should keep interest rates unchanged when it meets today at the committee’s first meeting since its emergency meeting last month, when it made a historic rate cut of 300 points. Basis, to revert to pre-flotation levels. The return rate on both overnight deposit and lending and the main transaction price is 9.25%, 10.25% and 9.75%, respectively, and the credit and discount rate stands at the level of 9.75%.

In a recent report, the investment bank, “Renaissance Capital”, lowered its forecast for the exchange rate of the pound in light of the country’s major currency resources being pressured for several months.

The exchange rate of the dollar is likely to rise between 17 to 17.5 pounds, instead of 16 to 16.5 pounds. The pound exchange rate fell by about 1% to reach 15.69 pounds per dollar since mid-February, with other emerging market currencies retreating to record levels not reached in decades.

Ahmed Hafez, head of the Middle East and North Africa research division at Renaissance Capital, said in a recent research note, “While Egypt may have managed to avoid capital outflow (and devaluation of the irregular currency), we still expect that The pound (which is trading an increase of 16% above the average real effective exchange rate in the long run) will continue to decline against the dollar as pressure continues on the three main resources of the hard currency, namely tourism, remittances and revenues from the Suez Canal.

At the same time, the British research institute “Capital Economics” indicated that keeping the artificial increase in the value of the pound above its real value will increase the problems of the current account in Egypt, which will be negatively affected by the declining competitiveness of the local currency at the international level. According to the London-based think tank, intervention by the central bank could be the reason behind the cohesion of the pound in the face of large-scale selling in emerging market currencies.

The dollar exchange rate stabilized at 15.6989 pounds since the third week of March, despite the exit of capital from equity investments and bonds denominated in the local currency.

But it is clear that the pound is trading above its actual value, and for this reason the state’s continued tightening of its hold on the local currency will lead to a further decline in Egypt’s external competitiveness, as well as exacerbating the current account deficit resulting from the decline in the state’s revenues from tourism, exports and the Suez Canal, according to what he said. James Swanston, economic analyst for the Middle East and North Africa.

Capital Economics expects that policymakers in Egypt will allow the exchange rate of the pound to fall, but warned that the more the state adheres to the pound’s support, the sharper the correction process will become in the future.

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