Devalue The Egyptian Pound By Société Générale
Société Générale expects Egypt to devalue the pound again in the near future.
The bank explained that the pound could end the current quarter about 10% below its current levels, as Egypt will need a cheaper currency, given the large current account deficit and the shortage of the dollar.
Société Générale strategists & analysts said the lack of decisive monetary policy tightening measures by the Central Bank of Egypt (CBE) raises questions about its commitment to deliver on its pledge to target inflation.
They also stated, Real interest rates remain negative based on the decisions that have been made or are planned to be implemented.
Société Générale analysts expect it to end the current quarter at 34 to the dollar, compared to Friday’s price of 30.62 to the dollar.
Analysts added that as portfolio inflows return, the central bank will need to prioritize rebuilding its foreign currency reserves, which will put additional pressure on the pound.
“We stick to our forecast for the US dollar against the Egyptian pound, which expresses the increasing of another sharp Devalue the Egyptian pound in the near term,” the analysts said.
The price of dollar in Egypt
The price of dollar in Egypt hits new highs against the pound. Although the pound lost 50% over the past year after three depreciations, the currency has yet to reach a short-term balanced exchange rate.
Egypt’s efforts to act against Devalue the Egyptian pound
The country is working on a $3 billion bailout from the International Monetary Fund (IMF) with a financing gap of $17 billion.
And in an interview with Al Arabiya, Bloom Securities Brokerage Managing Director Mr/ Mohamed Fathalla predicted that with the expiration of the 18% certificates that were issued in March 2022 and has raised EGP 750 billion, and redeem them next March, part of the proceeds of those funds will go to the Egyptian Stock Exchange, but not significantly.
He also said many investors prefer ‘fixed’ banking sector returns as a safe haven away from risk in equity markets, which have made big leaps.
He explained that the Egyptian Stock Exchange since Devalue the Egyptian pound, jumped from the levels of 9500-10000 points to the highest level of 17 thousand points, which encourages and opens the appetite of some investors to resort to the stock market, in search of more gains, but it will not be as intense as required, as the price boom occurred.
Egypt will resort to the devalue the Egyptian pound again in the near future, Fathalla said that the move will have a positive impact on the Egyptian stock exchange, but foreign investors are waiting for the stability of the exchange rate to return significantly to the Egyptian capital market.
He added that the move towards Devalue the Egyptian pound is in favor of the bourse’s bullish trend, as investors resort to hedging valuable stocks.
Stages of devalue the Egyptian pound
- The first of these major reductions, which took place in November 2016, witnessed the devalue the Egyptian pound from levels of 8.88 pounds per dollar to levels of 15.77 pounds per dollar, down 78%. Over the past seven years, the Central Bank of Egypt has announced four more major devaluations of the pound.
- The second float occurred in March 2022, when the pound fell from values of 15.77 to 19.7 pounds per dollar, down 25%.
- The third, in which the pound fell from levels of 19.7 pounds to levels of 24.7 pounds per dollar, a decrease of 25.4%, which happened last October.
- The decision to lower the pound came from levels of 24.7 pounds per dollar to levels of 32 pounds per dollar, a decrease of 30% during the fourth and final flotation in January 2023.
Dr. Khaled El-Shafei, an economist and director of the Capital Center for Economic and Strategic Studies, stated in his response that the markets are waiting for the Central Bank of Egypt to fully liberalize the exchange rate before engaging in any speculation on the exchange rate. The dollar that happens to be on the black market.
The rise in the dollar’s exchange rate at the present time is not a fifth flotation, but rather a continuation of the fourth flotation that occurred during the month of October last year, according to economist Hani Genena, who previously confirmed that the market is still witnessing a situation. volatility and instability. He expected the dollar exchange rate to rise more, which indicates a decline in the value of the dollar compared to the pound once dollar inflows begin.