The pound continues its downward journey against the dollar... and records a record level after the IMF agreement

Dubai, United Arab Emirates - The price of the Egyptian pound fell against the dollar by 7.7% during trading on Wednesday, with the green currency recording 29.63 pounds for purchase, and 29.76 pounds for sale at the Central Bank - to record a new record level - and for the pound to continue its journey of decline against the dollar by more than 100% since the decision to devalue the pound last March. Experts attributed the reasons for the decline to the Central Bank’s implementation of a permanently flexible exchange rate system in response to the requirements of the International Monetary Fund.

The price of the pound against foreign currencies witnessed fluctuations during today's transactions in Egyptian banks, as it began the day with a significant decline against the dollar, exceeding the level of 32 pounds, before gradually rising again to close at the level of 29.76 pounds for sale at the Central Bank of Egypt. The Kuwaiti dinar, the most valuable currency against the pound, jumped to levels exceeding 106 pounds before falling to the level of 97.3 pounds for sale. Banking expert Hani Aboul Fotouh said that the Central Bank of Egypt applies a permanently flexible exchange rate system. To stop speculation on the dollar in the parallel market, which led to a significant decline in the price of the pound against the dollar today in banks, adding at the same time that eliminating the parallel market requires the provision of foreign exchange and its availability in the market.

On October 27, the Central Bank of Egypt announced the implementation of a flexible exchange rate system for the pound against other foreign currencies using the forces of supply and demand, in response to the requirements of the International Monetary Fund so that Egypt can obtain new financing to fill the foreign exchange gap. In exclusive statements to Ofoq News in Arabic, Abu Al-Futouh expected that the price of the pound would witness fluctuation during the coming period until the parallel market for the dollar was controlled, in light of the government’s insistence on implementing a flexible exchange rate, noting that investment bank estimates expect the price of the dollar to range between 32-36 pounds during the first quarter of this year, before it declines again.

According to the International Monetary Fund, the Egyptian government made pledges in exchange for obtaining new financing from the Fund. These pledges included the Central Bank’s commitment to a permanently flexible exchange rate. To help mitigate external shocks and reduce the deficit in the balance of payments. Hani Abu Al-Futouh indicated that the devaluation of the pound will have a positive impact on attracting foreign direct investment, which is wary of entering the Egyptian market as a result of the existence of a parallel market for the dollar. However, he pointed out that the decline of the pound will also negatively affect the high rate of inflation, which the Central Bank is trying to control through monetary policy tools, stressing the need for the government to intervene to control the markets to stop any attempts by traders to exploit prices excessively.

The annual inflation rate rose to 21.9% last December, reaching the highest level since 2017, and the core inflation rate reached 24.2% during the same month. The banking expert spoke about the role of high-yield bank savings certificates in confronting the parallel market for the dollar, provided that the Central Bank of Egypt does not interfere again in exchange rate movements, and that the banks provide dollar liquidity that meets customer needs. He pointed at the same time to the government’s efforts to increase the dollar’s ​​receipts and reduce its expenditures by rationalizing public spending, postponing dollar projects, setting priorities for imports, and increasing the dollar’s ​​receipts from export revenues.

The National Bank of Egypt and the Bank of Egypt issued high-yield savings certificates for one year with an interest of 25% to be paid at the end of the certificate’s term, or with a return of 22.5% to be paid monthly, and have collected more than 100 billion pounds ($3.4 billion) since they were launched on January 4 of this year - according to media statements by officials of the two banks - and the Commercial International Bank offered a savings certificate with a return of 22.5% for a year and a half. Banking expert Mohamed Badra agreed with him that the decline in the price of the pound against the dollar came as a result of the Central Bank’s implementation of a permanently flexible exchange rate system, in response to the requirements of the International Monetary Fund. He supported his statement by the decline in the price of the pound at the beginning of trading until it reached the highest peak and broke the level of 32 pounds before gradually rising near the level of 30 pounds, anticipating the availability of dollar liquidity to banks from the local market during the coming period, due to the fear of dollar holders of its decline in banks.

Badra said, in exclusive statements to Ofoq News in Arabic, that eliminating the parallel market for the dollar requires the availability of dollar liquidity in local banks so that citizens are not forced to obtain green currency from the black market. The Central Bank’s net international reserves rose to $34 billion by the end of December 2022, an increase of $500 million over the previous November, according to Central Bank data.