04:10 PM
Monday August 22 2022
I wrote – Manal Al-Masry:
3 bankers who spoke to Masrawy believe that the application of a system that includes a managed exchange rate for the pound is the most appropriate scenario for Egypt in the current period, to avoid the price of the dollar against the pound falling to a record level affected by the decline in foreign exchange flows, which may strongly raise inflation rates and thus affect the monetary policy goals.
While Mohamed Badra, a board member of a government bank, believes that following the free exchange rate policy is the closest to being implemented in order to comply with the requirements of the International Monetary Fund, which is considering pumping a loan to Egypt to help it bridge the financing gap, provided that it includes a flexible move without price jumps. The dollar, as happened in the last five months.
This comes after Hassan Abdullah was appointed as the acting governor of the Central Bank for a period of one year, by a republican decision issued by President Abdel Fattah El-Sisi on Thursday, one day after Tarek Amer, the former governor of the Central Bank, resigned from his position, which President El-Sisi decided to appoint as an advisor to the president. Republic.
The exchange rate of the pound witnessed a noticeable decline against foreign currencies in recent months, and the price of the dollar rose by 21.7% when comparing its level today with what it was on last March 20 before the noticeable movements of the exchange rate, as the average price in banks reached 19.10 pounds for purchase and 19.10 pounds. 18 pounds for sale today.
The exchange rate of the pound against foreign currencies is facing a number of pressures, foremost of which is the decline in foreign exchange resources due to the repercussions of the Russian war on Ukraine, the tightening of monetary policy globally, in addition to the tightening of import-related procedures, which contributed to a decrease in the supply of some types of goods in the markets, and thus any change in the These actions significantly increase the demand for foreign currency.
Egypt is negotiating with the International Monetary Fund to launch a new cooperation program accompanied by financing that contributes to bridging the gap that Egypt suffers from, which comes at a time when negotiations are witnessing some stumbling and controversial points in the program, as the Fund wants to impose difficult conditions, according to analysts and experts.
Free price is the best choice
Mahmoud Nagla, Executive Director of Income and Fixed Money Markets at Al-Ahly Financial Investment Company, told Masrawy that the managed exchange rate system is the best option, preferring to stay away from the application of a free exchange rate system to avoid the negative consequences resulting from it in light of the decline in foreign exchange resource flows due to economic conditions. negative globally.
He added that it is difficult to leave the dollar’s exchange rate free against the pound on a daily basis during this difficult period, as this may result in speculation with the absence of an abundance of foreign exchange to counter it.
Najla stated that the managed exchange rate will be controlled and will include a gradual movement until it becomes close to its fair price against the dollar without putting pressure on it for a long time and not breaking it once in order to avoid price increases shocks.
He pointed out that the International Monetary Fund tends to the free exchange rate system, but Egypt can be a skillful negotiator to convince the Fund of the danger of applying this mechanism at the present time, and that the most appropriate solution, even if temporarily, is to work at a managed exchange rate.
Sahar El-Damaty, a banking expert and former Vice President of Banque Misr, told Masrawy that controlling the exchange rate system is not necessary to happen through the free float of the pound, and it is currently preferable to follow the managed liberalization policy to avoid negative repercussions and high inflation rates.
Al-Damaty added that the managed flotation will make the new governor more able to control inflation compared to the free flotation, which may result in negative repercussions.
A member of the board of directors in a private bank, who preferred not to be named, told Masrawy that Egypt’s adoption of a free exchange rate mechanism without the intervention of the Central Bank may find acceptance and encouragement from the International Monetary Fund, but its implementation may not be suitable in this period of global and local crises and shortages. in foreign exchange resources in Egypt.
He added that following a free exchange rate is required, but in a later period after the improvement of foreign exchange resources, so that the pound can stand against the dollar.
According to the source, the central bank governor can follow a currently managed exchange rate, which is the optimal and realistic solution, and is in line with the nature of the current stage until the crisis is overcome.
The managed float is used by a number of countries, and the exchange rate is determined by the Central Bank daily, with a 10% increase or decrease, according to the source.
Free float closest to the application
Mohamed Badra, a board member of a government bank, told Masrawy that the free exchange rate system is the closest to being implemented to comply with the requirements of the International Monetary Fund and to avoid negative damages from the inability to continue facing pressure on the currency, which may lead to its price dropping to a record level. .
He explained that the free exchange rate is characterized by the presence of a flexible movement of the dollar against the pound, stressing the importance of moving the currency rate gradually and not in a sudden manner, which reduces the impact of price increases and the market’s ability to absorb them.
Badra stressed that the new acting central bank governor is highly skilled and has the ability to intervene in a timely manner to adjust the exchange rate in the event of speculations on the dollar, as all central banks do to protect their currencies in times of crisis to achieve balance.
He added that merchants are currently working on evaluating their goods at a dollar price higher than what is currently in banks to maintain their profitability ratio, fearing that the pound will not be able to withstand pressure and its price will drop to a record level, which makes the currently announced price inexpressive of its true value.