The dollar exceeds 27 pounds... and the decline of the Egyptian currency is reflected in the stock market

Cairo, Egypt - The price of the Egyptian pound continued to decline against the US dollar and foreign currencies, on Thursday, as the price of the dollar reached 27.07 pounds for purchase and 27.16 pounds for sale, according to data from the Central Bank of Egypt. Experts attributed the reasons for the pound's decline again to the Central Bank's adoption of a sustainable flexible exchange rate system, in agreement with the International Monetary Fund, and the currency difference contributed to the Egyptian Stock Exchange achieving record levels in the local currency, whether in terms of market capitalization, which exceeded one trillion pounds for the first time in its history, or the increase in the number of transactions carried out to more than 115,000 transactions for the first time.

With the beginning of Wednesday's trading, the price of the pound fell by 7% against the dollar, and the Banque Misr and the National Bank of Egypt introduced new one-year savings certificates with an interest of 25% disbursed at the end of the certificate period or with a return of 22.5% disbursed monthly, as of January 4. Aya Zuhair, head of the research department at Zilla Capital, a financial consulting company, attributed the decline in the exchange rate of the Egyptian pound against the dollar to the Central Bank of Egypt adopting a sustainable flexible exchange rate system in line with the requirements of the International Monetary Fund, saying that it is a logical and expected decision, with the aim of eliminating the parallel market for the dollar, with the National Bank of Egypt and Egypt offering high-yield savings certificates to attract citizens’ savings and limit the expected increase in inflation during the coming period, in addition to the possibility of gradually moving the prices of petroleum products during the coming period, and increasing the interest rate. At the last meeting of the central bank last month.

The Automatic Pricing Committee for Petroleum Products will hold its first meeting in 2023 during the first week of January. To determine the prices of petroleum products, based on the movements of international petroleum prices and the exchange rate of the pound against foreign currencies during the three months preceding the meeting. Aya Zuhair said, in statements to Ofek News in Arabic, that “the fair price of the dollar ranges between 25-28 pounds,” expecting that the price of the pound will continue to decline during the coming period until it stabilizes at the “fair price,” regardless of the movements of the price of the dollar in the parallel market, noting the need for the Central Bank to provide dollar liquidity following its decision to cancel the system of documentary credits in financing import operations.

The Central Bank of Egypt had previously issued a decision on December 29 to cancel the documentary credits system for carrying out import operations, which it had implemented since March to rationalize imports in light of the dollar shortage. Aya Zuhair explained the impact of offering high-yield savings certificates on the performance of the Egyptian economy, saying that the year 2023 is one of the years expected to witness a global economic contraction, which will affect companies’ expansions not only locally but also globally, and therefore offering savings certificates will not greatly affect the performance of the already contracting economy.

The net international reserves of the Central Bank of Egypt rose to $34 billion by the end of December 2022, an increase of $500 million over the previous November, according to Central Bank data. For his part, financial markets expert Wael Enaba said that moving the price of the pound against the dollar led to the Egyptian Stock Exchange rising to record levels during the Wednesday and Thursday sessions, with the stocks reflecting the decline in the value of the pound against the dollar, and the main index on the stock exchange exceeding the level of 16 thousand points.

The market capitalization also achieved the highest market value and the highest return on savings certificates in history at 25%, as well as the highest price of the dollar against the pound with a value exceeding 27 pounds. According to stock exchange data, the market capitalization of the Egyptian Stock Exchange rose, achieving the highest value in its history during Wednesday’s trading session, reaching 1.013 trillion pounds, exceeding the highest level it reached, which reached 1.008 trillion pounds in April 2018. The session also witnessed the implementation of the highest number of transactions for the stock exchange in its history, amounting to 115.6 thousand transactions.

In statements to Ofek News in Arabic, Enaba downplayed the impact of offering high-yield savings certificates on the performance of the Egyptian Stock Exchange during the coming period, explaining that the savings certificates aim to attract a category of dollar holders who have dollar accounts or dollar speculators to convert them to the pound and buy savings certificates, with the aim of attracting dollar liquidity, pointing to the importance of allowing foreigners to purchase these certificates, which allows attracting more dollars, especially since the return on these certificates is exempt from taxes, while the Treasury bonds are taxed at 20%. According to a statement from the National Bank of Egypt, the bank targets Egyptians and foreigners by issuing new savings certificates.

Wael Enaba expected that the National Bank of Egypt and the Egyptian government banks would stop offering savings certificates within two or three weeks at the latest. Due to its success in attracting the targeted proceeds from these certificates, especially since the two banks stopped lending on old savings certificates to ensure attracting liquidity from outside the banking system.