2:26pm
Wednesday 14 December 2022
I wrote – Shaima Hefzy:
A Goldman Sachs report predicted that Egypt’s central bank will raise interest rates by 1% in a special meeting this week.
The report, released this week, said the expected rise in interest rates comes to counter dollarisation, particularly as black-market dollar prices rose by more than 33% above the official rate.
The bank estimated the price of the dollar in the parallel market at around £36, while its price in banks was around £24.8.
The report attributed this difference to the lack of foreign currency liquidity, especially with the weak balance of payments due to the Russo-Ukrainian war, which has depleted foreign currency liquidity, with declining flows and limited access to the foreign exchange market .
The report believes the Egyptian pound is trading below its real value, predicting the current situation will not continue, but warned that in extreme cases there are risks of slipping into a downward spiral of currency depreciation, especially if inflation it is not checked.
The report excludes that Egypt is faced with this scenario, with an imminent program of the International Monetary Fund that could act as a “wall”.
He said the Egyptian authorities’ commitment to a flexible exchange rate – a demand that is at the heart of the IMF deal – could only be achieved through “purging the foreign exchange market” at least for current account operations. .
The report expected Egypt to take decisive steps in the coming days to address the black market, a step that carries major downside risks to the Egyptian pound, given the central bank’s ability to pump dollars into the market and manage a monetary policy that supports the Egyptian pound and reserves.
