02:26 PM
Wednesday, December 14, 2022
I wrote – Shaima Hefzy:
A Goldman Sachs report expected the Central Bank of Egypt to raise interest rates by 1% in an extraordinary meeting this week.
The report, which was issued this week, said that the expected interest rate hike comes to counter dollarization, especially with the rise in dollar prices on the black market by more than 33% from the official rate.
The bank estimated the price of the dollar in the parallel market at about 36 pounds, while its price in banks ranged at about 24.8 pounds.
The report attributed this difference to the lack of foreign currency liquidity, especially with the weakness of the balance of payments due to the Russian-Ukrainian war, which depleted foreign currency liquidity, with declining flows, and restricted access to the currency market.
The report believes that the Egyptian pound is trading below its real value, expecting that the current situation will not continue, but it warned that in extreme cases there are risks about slipping into a spiral of currency depreciation, especially if inflation is left unchecked.
The report excludes that Egypt will face this scenario, with an upcoming program of the International Monetary Fund that may act as a “wall”.
He said that the commitment of the Egyptian authorities to a flexible exchange rate – a demand that lies at the heart of the agreement with the IMF – can only be achieved through “purging the exchange market” at least for current account transactions.
The report expected that Egypt would take decisive measures to confront the black market, in the coming days, a step that entails great negative risks for the Egyptian pound, according to the Central Bank’s ability to pump dollars into the market, and to manage a monetary policy that supports the Egyptian pound and reserves.