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Investing.com – With the Central Bank of Egypt meeting on interest rates approaching at the end of next week, the Egyptian pound is facing severe pressure that may push it to decline further during the coming period, as a recent report from HSBC Bank stated that the dollar will reach levels The 35-40 pounds per dollar during the coming months, that is, in the medium term.
Hours ago, the non-deliverable futures contracts for the pound continued their strong declines again, reaching unprecedented levels. As it crossed the 40-pound barrier for a 12-month period, according to Bloomberg data.
Meanwhile, the pound continued its stability in the official exchange market, to record today 30.84 for buying, and 30.95 for selling, according to Central Egyptian data.
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About 40 pounds?
The bank “HSBC (LON:)” (HSBC) had expected earlier that the price of the dollar would reach the level of 30-35 pounds during the current year. However, the challenges facing the Egyptian economy prompted him to adjust his expectations regarding the Egyptian pound, to reach between 35-40 pounds in the coming months and in the medium term.
And the bank continued in its report that the dollar will reach levels of 37.5 pounds as an average price during the year instead of the average price of 32.5 pounds in its previous forecast, which was issued in January.
And the bank said earlier, during the devaluation of the pound in January: “Even the decline to more than 30 against the dollar, which raises the losses in the pound price to 50% (raising the dollar’s gains to more than 100%), may not put pressure on the significantly high import bill.” Sufficient or leading to a sufficiently strong recovery in remittance flows immediately, but current account pressures are easing.
Regarding the interest rate meeting, the British Bank expected that the Central Bank of Egypt would raise the interest rate by 3% in its next meeting next Thursday.
It is noteworthy that the Bank expected in its January report a rise in the interest rate by 3%, or 300 basis points, during the first quarter of the year, making the nominal interest rate reach 19.75%.
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Fitch Ratings
Fitch Solutions expects the Egyptian pound’s exchange rate to reach EGP 30 against the dollar by the end of this year, after declining against the dollar to 33 levels in the short term in the coming weeks.
The agency attributed the pound’s rise to 30 levels by the end of the year, after its decline to 33, to several factors, most notably the rapid progress in selling state-owned assets by the second half of 2023, the increase in foreign currency inflows, and the convergence between the official exchange rate and its counterpart in the parallel market.
She stressed that fears of an exacerbation of recession in the United States and the euro area will hinder a stronger recovery in the value of the pound during 2023.
She stated that the continuous decline in the currency is due to the central bank’s commitment to follow a flexible exchange rate, which will take some time for fear of an excessive decline in its value.
It ruled out the return of investments in the Egyptian debt market to the same levels as before the Russian-Ukrainian invasion.
At the same time, the agency lowered its growth forecast for 2023/2024 from 5.2% to 4.3%, attributing this to high inflation and strict monetary policy, which will affect consumption.
With the currency having lost nearly 20.0% of its value so far in 2023 and January inflation reaching a multi-year high of 25.8%, we now expect inflation to average 25.9% in 2023.
The agency expected the current account deficit to narrow from 4.1% of GDP in 2021/22 to 3.6% in 2022/23 due to lower global commodity prices, along with a resilient tourism sector and strong revenues from the Suez Canal.
While I also expected the IMF program and GCC support to help ease financing pressures, risks remain as the authorities still need to make progress on its privatization to achieve GCC support.
Previous forecasts of the pound
According to a Credit Suisse report, the price of the dollar in Egypt will reach 35 pounds.
The Swiss bank also believes that the implementation of the monetary fund program is appropriate to improve the current economic situation, even if it is implemented partially or late by the government.
While Bank of America (NYSE:) did not specify an expected price for the dollar, it believes that the pound’s decline is a practical solution to bridge the external funding gap that Egypt has been suffering from recently, as it expected a significant decline without specifying the rate of decline.
At the same time, the French bank “Societe Generale” confirmed, a few days ago, that the pound will decline by about 10%, before the end of this March, to reach 34, due to pressure from the increase in debt that led to the state’s need for a cheaper currency, with the growing current account deficit and shortage. sharp in the dollar. It is expected that the value of the pound will decline again in the near future, and it is likely to end the current quarter below its current levels by about 10%.
Meanwhile, Carla Selim, an economist specializing in Middle East affairs at Standard Chartered Bank, spoke about the Egyptian economic situation in an interview on Bloomberg. Carla said that the delay in the availability of hot money may push the pound to fall against the dollar to levels of 33-35 to stimulate Gulf investments to enter and return hot money to the Egyptian economy.