I wrote – Manal Al-Masry:
Bankers and economists have said that the Central Bank of Egypt has chosen to follow the policy of gradually reducing the exchange rate of the pound against the dollar, and this is what is currently happening on the ground, in order to avoid price shocks and highs. inflation rates in the event that the price of the pound leaves a sharp decline.
And dollar prices have continued their gradual rise against the pound in banks over the past two days, a continuation of what they have witnessed in the past few weeks, as they rose 3 pips on Sunday and 2 pips on Monday.
This comes amid expectations that Egypt will continue to follow a flexible exchange rate policy, as part of measures that could be included in the ongoing negotiations with the International Monetary Fund to implement a new economic reform program that includes obtaining a financing.
Last month, President Abdel-Fattah El-Sisi appointed Hassan Abdullah interim governor of the Central Bank of Egypt, followed by the expectation that Abdullah would violate his successor’s policy of shifting the exchange rate into case of need, as happened on November 3, 2016.
The price of the pound versus the dollar has seen a notable decline since March 21 so far, as the price of the dollar has risen by more than 22%, bringing its average price in banks currently to £ 19.31 for buying. and 19.39 for the sale.
Dr Fakhry El-Feki, a professor in the Faculty of Economics and Political Sciences of the University of Cairo, and head of the Parliament’s plan and budget committee, told Masrawy that the central bank is currently moving towards a political exchange rate which depends on a gradual reduction, which is a necessary measure to cope with current economic conditions.
He added that the central bank is likely not to follow the policy of shifting the pound once again to avoid price shocks and high inflation.
The former Central Bank had announced the liberalization of the exchange rate in November 2016, so that Egypt would switch to a free exchange rate determined according to the mechanism of supply and demand in the banks, but last June the governor he stated that monetary policy at the time of the Corona pandemic returned to the exchange rate stabilization policy to avoid the occurrence of price shocks.
Fakhri Al-Fiqi explained that the gradual reduction helps the central bank reach the right price of the pound under the supply and demand policy by the end of this year, with the growth of resources of foreign exchange inflows to avoid that the market price shocks and high inflation.
El-Feki added that foreign exchange assets have started to improve dramatically, which includes Suez Canal revenues, remittances from Egyptians working abroad, exports and direct investment, which could strengthen some of the position. of the pound against the dollar to be reached by the end of the year 20 pounds.
He explained that the International Monetary Fund, in determining the exchange rate of the pound, takes into account the banking sector’s ability to manage the need for documentary credit, whether exchange rate or free. it will be no conflict with the fund policy.
Mohamed Badra, a banking expert, said the central bank is currently working to move to an intelligently managed exchange rate policy by gradually reducing the pound, which is a successful policy run by the new central bank governor, relying on its experience and specialization in managing international transactions and treasury until a fair pound price is reached.
Badra added that not following the exchange rate reduction policy at once would save Egypt from occurring price shocks and an inflationary surge, and that some traders have not exploited their ambitions to drastically raise prices.
He said that the Egyptian economic conditions are in line with the policy of gradual reduction until the right price of the pound is reached, according to the mechanism of supply and demand.
And the Central Agency for Public Mobilization and Statistics announced, in a statement last Thursday, the return of the increase in the annual rate of inflation on the total of the Republic in August after the decline for two consecutive months, registering 15.3% against 14.6%. in the month of July.
The annual inflation rate in cities increased to 14.6% last August, up from 13.6% in July, according to the agency’s data.
Meanwhile, the Central Bank announced an increase in its core inflation rate to 16.7% last August, up from 15.6% the previous July.
The annual inflation rate in cities still exceeds the target range set by the Central Bank for the annual inflation rate at the level of 7% (+ or minus 2%) on average during the fourth quarter of 2022.
A board member of a private bank told Masrawy that the central bank is following a policy of gradually reducing the price of the pound against the dollar, predicting that it will continue to follow the same approach to avoid floating damage, according to specific policies. of feasibility.
He added that leaving the exchange rate completely at the market rate in the current period once would result in the difficulty of predicting the dollar exchange rate in light of the great pressure on the pound following the increase in demand for foreign currencies versus declining in. supply.
He continued: “But monetary policy currently has a great deal of intelligence in following a gradual devaluation of the local currency until there is a shift in currency assets that will strengthen the strength of the pound against the dollar.”
The board member believes that the Central Bank’s monetary policy has set a fair price for the pound against the dollar, and will gradually reach it to avoid price shocks, especially as many of the products traded in the Egyptian market are imported and will affect the consumer directly.
Sahar El-Damaty, a banking expert and former vice president of Banque Misr, told Masrawy that the central bank is following managed exchange policy to avoid negative repercussions and high inflation rates and will most likely not take steps to significantly reduce the rate. price of the pound at once.
Al-Damaty added that the managed quotation will make the new governor more able to control inflation than leaving the exchange rate completely at the market rate, which could have negative repercussions.
Great cut coming
For his part, Hani Genena, an economist and lecturer at the American University, disagrees with this trend, and told Masrawy that the ongoing gradual devaluation of the pound exchange rate should be the prelude to a significant reduction. , equivalent to an increase in the price of the dollar between 10% and 15% during the next period is the same level at which some traders are currently quoting commodities.
He explained that the central bank is currently dependent on gradually reducing the exchange rate until some procedures are completed before releasing the hand of the pound against foreign currencies, as it is currently working to complete negotiations with the International Monetary Fund and allow time. enough for companies and banks to settle their positions before this procedure to avoid damage to them.
Geneina added that managed float is not suitable for Egypt, as it will lead to price distortions and give a distorted message of deficit, as well as pressuring the central bank to intervene with foreign exchange reserves to support the pound.
He said the free exchange rate can raise the prices of some commodities that are not priced at the market price, such as government goods, subsidized or not, but it would be better than the scarcity of these commodities.
Hani Genena explained that raising the prices of goods with their availability would be better for the citizen than lacking them and would push him to rationalize his expenses, as well as help run the wheel of production in factories.
He added that Egypt is in line with it during the current period at a free exchange rate in light of the lack of sufficient dollars in foreign exchange reserves to handle the exchange rate, but the exchange rate can be managed on the other hand. it starts by raising the interest rate to reduce internal spending and achieve equilibrium.
He explained that exchange rate management would be feasible in case there were large dollar export and investment flows and a large cash reserve of $ 100 billion.
The foreign exchange reserve at the Central Bank of Egypt decreased for the fourth consecutive month and for the fifth time in the past 6 months last August, but fell at the lowest pace, which is considered relatively stable.
The reserve declined by about $ 1 million in August, the Central Bank recently announced, to reach $ 33.142 billion late last month.
Despite this, the reserve lost approximately $ 7.8 billion of its 19% value during the first 8 months of this year, coinciding with the repercussions of the Ukrainian crisis on the global and local economy and the policy of increasing the interest rates at a global level, which made it necessary to use part of this reserve during some of these months.
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