The Central Bank’s decision yesterday regarding interest pricing came to cast a shadow over the path of the Egyptian pound in the coming period, as several banks and international institutions had forecasts that the pound would decline during the last period, or in conjunction with the interest decision, but the financial authorities in Egypt did not take this decision despite the widening gap. between the official price and the black market price and futures contracts.
However, it seems that the financial authorities are planning to reduce this aforementioned gap through tools other than reducing the official rate against foreign currencies, as this was evident in the turmoil in the black market for dollars during the past days, in addition to the decline of the pound in non-deliverable futures contracts. The question remains: Do these signs indicate that the central bank wants to reduce the gap first and then make a slight reduction in the official rate? This is instead of leaving the gap wide and carrying out a sharp reduction that may jump in inflation rates again, and from this standpoint, the measures taken during the next few weeks can be explained.
Gold baffles the markets now.. between expectations of moving to record levels, and expectations of a halt in the rise in a changing macroeconomic environment.
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The black market is getting weaker
The black market in Egypt for the dollar has gained more strength during the last period due to negative expectations about the decline of the pound in the coming period, as it is active in these times, which leads to deepening the economic crisis that the Egyptian government is currently facing.
In light of these developments, the response came quickly from a number of major merchants in Egypt, agreeing to stop buying completely from the black market for a period of one month.
This step, which was initiated by the Car Dealers Association, was followed by the Marble Association and the Foodstuff Dealers Association, after the exchange rate of the dollar against the pound reached record numbers of more than 40 pounds against the dollar.
Meanwhile, the Egyptian government dealt a painful blow to the black market for the dollar through its decision to exempt imports for those coming from abroad from customs duties, or with regard to the offering program, as the past days witnessed the announcement of the implementation of two deals within the government offering program, which indicates an imminent breakthrough in the crisis. .
In this context, Sahar El-Damati, an Egyptian banking expert, said that the decision to exempt gold from customs for those coming from abroad helps in resolving an existing crisis, re-establishing a balance between supply and demand and controlling prices, and calming the demand on the black market resulting from the increased demand of yellow metal dealers for the dollar to import gold. It covers the increasing demand of the citizens.
Maged Fahmy, former Chairman of the Board of the Industrial Development Bank, and Muhammad Badra, a banking expert, agreed with the opinion of Sahar Al-Damati about the merits of the decision to reduce the demand for buying currency from the black market after making available a sufficient supply of gold.
Dr. Alaa Rizk, an Egyptian economist, said that one of the most important reasons for expectations not to float the pound is the commitment to pay any financial claims on the Egyptian government to international creditors and the government’s insistence that the deficit in the state’s general budget not exceed 6.5%, along with the stability of the debt-to-product ratio. All this was reflected in the seriousness of the Central Bank of Egypt in applying a flexible exchange rate within the terms of the agreement to obtain 3 billion dollars from the International Monetary Fund.
The gap is receding.. Procedures are bearing fruit
The dollar fell against the pound in the latest reading of the non-deliverable futures contracts for a month, to about 31.8 per dollar, or by 2.4%, after it crossed 35 earlier, which is the lowest level the dollar has reached against the pound since March.
At the same time, the dollar also fell against the pound on the black market, to below 40 pounds per dollar, after this level was exceeded during the past few days, as it is now trading around levels of 37 pounds per dollar. Affected by the recent decisions, in addition to the government’s reassuring statements to investors and economic reports stating that the pound will not decline in the near future.
On Wednesday, Egyptian Prime Minister Mostafa Madbouly said that the pound is undervalued, and with increased investments, a breakthrough will occur, the currency crisis will disappear, and the pound will return to its true value.
The Egyptian Prime Minister affirmed that Egypt will soon implement several deals, and the country will be able to bridge the dollar gap, and it has a clear picture of paying obligations.
He explained that the planned investments for the next fiscal year (2023-2024) amounted to EGP 1.640 trillion.
Madbouly indicated that legislative amendments had been made to equalize public and private sector projects, and that there were no preferential treatments for state projects.
He pointed to allowing foreigners in the importers’ register for a period of 10 years, as well as expanding the granting of the golden license to all projects.
Madbouly said that a maximum of 10 working days has been set for obtaining project approvals.
The Egyptian Minister of Planning, Hala Al-Saeed, confirmed that the reason for the pressure on the dollar is due to the sharp rise in the prices of strategic materials and the increase in the import bill, which represented severe pressure on the state budget.
Hala added that the state has taken more than one solution to address the crisis, such as increasing tourism revenues by 25%, increasing Suez Canal revenues by 30%, and reducing imports by 34%.
Meanwhile, Citigroup (NYSE:) bank indicated in its report issued last week that the Central Bank of Egypt is likely to postpone its decision on devaluing the pound, at least until the end of next month. Where this expectation is the opposite of other bets that suggest a decline in the pound in the near future, according to what was reported by Bloomberg Agency.
In this context, Goldman Sachs (NYSE:) indicated that the reasons for the Egyptian government’s failure to implement a more flexible exchange rate in recent weeks is due to the futility of further reductions in resolving external imbalances, given the already depreciating value of the pound.
2023-05-19 12:08:00
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