09:28 PM
Wednesday 15 June 2022
I wrote – Shaima Hefzy:
Analysts, to whom Masrawy spoke, ruled out that dollar prices in Egypt would be affected after the US Federal Reserve’s decision to raise interest rates today, Wednesday.
The US Federal Reserve decided to raise interest rates by 0.75%, the highest rate increase in more than 28 years, in an attempt to rein in high inflation.
Hani Tawfiq, an economist, told Masrawy that the dollar’s price is expected to rise against the pound, but “gradually and not with a one-time reduction.”
The Central Bank announced a decrease in foreign reserves last May by about 1.63 billion dollars, to record 35.495 billion dollars, compared to 37.123 billion dollars in April.
Since the US Federal Reserve decided to raise interest rates last March, and the repercussions of the Russian-Ukrainian war, Egypt has been subjected to pressure as a result of the exit of foreign investments (hot money) from emerging markets, including the Egyptian market.
Hot money is financial flows from outside the country for the purpose of investing and benefiting from a specific economic situation, such as the low price of the local currency against the dollar or the increase in interest.
Prime Minister Mostafa Madbouly estimated the value of the investments that have gone out since the beginning of the year until now at about $20 billion.
Foreign investors benefit from the high price of the dollar in Egypt, because they can invest in realizing large gains from purchasing debt instruments through which the government borrows to bridge the deficit between expenditures and revenues.
Despite the decline in reserves, the decrease in the trade balance deficit and the increase in remittances from Egyptians abroad supports the pound against the dollar, according to Ahmed Moati, CEO of iMarkets financial consultancy in Egypt.
According to data from the Central Agency for Public Mobilization and Statistics, the trade balance deficit decreased last March by 39.7 percent, with an increase in exports of crude oil and petroleum products.
Moati explained that “the improvement in the trade balance with the improvement in the value of exports versus imports, this means less demand for the dollar and higher remittances, and the decline in reserves is not severe.”
He added that given the rise in the price of the dollar at an average of one piaster in banks, a movement in the dollar can be expected at an average of 25 piasters during the next two or three months.
He explained, “The markets locally and globally, the price of the dollar, according to expectations that the US Federal Reserve will raise interest rates. What is happening today is a confirmation of the rate of hike between 0.5% or 0.75%, but it is not a new move.”