This was predicted by a report published by the British “HSBC Global Research”. The Egyptian pound finds ground at a level of between 30 and 35 against the dollar in the near term. He indicated that interest rates could rise with inflation expected to rise above 25% in the first quarter of 2023.
This comes as the pound has swung between gains and losses against the dollar during the third session, following the currency’s last devaluation on January 4th.
The pound fell to a level of 27.2 against the dollar, which brought the losses to 49.3% since the devaluation of the currency in March of last year.
The current round of currency devaluation is part of a long-awaited campaign to rebalance Egypt’s external accounts in the wake of last year’s external shocks, but near-term expectations are still difficult and uncertain, according to Forbes. which was viewed by Al Arabiya.net. .
And “HSBC” said, “Even a drop to over 30 against the dollar, which increases sterling’s losses to 50% (increasing dollar’s gains to over 100%), may not put pressure on the high import bill at sufficiency or lead to a strong recovery”. “Sufficient remittance flows are immediate, but pressures on current accounts are easing”.
Meanwhile, the UK bank said Egypt’s exports of goods and services rose 20% year-on-year in the third quarter of last year, but falling transfers prevented the current account from making bigger gains.
Given that labor needs in the Gulf region are very high, HSBC believes that expat flows have not necessarily been lost, but delayed due to uncertainty over the trading system, stressing that they will pick up once sterling expectations settle. they will be stabilized.
High inflation
HSBC expects inflation to pick up and has set a target for the consumer price index (CPI) to exceed 25% in the first quarter of this year and not fall below 20% year-on-year until next year.
It also expected another rate hike of 3%, or 300 basis points, during the first quarter of the year, which would take the nominal interest rate to 19.75%.
The Central Bank of Egypt has set a target of 7% for annual headline inflation for 2023, with inflation targets of 7% and 5% in the fourth quarter of 2024 and 2026, respectively.
However, that seems a long way off given the way the currency is traded at the moment.
In a related context, Egypt’s two largest government banks announced the issuance of investment certificates with a yield of 25% for one year payable annually, or 22.5% interest payable monthly, to combat high inflation, which is approaching its highest level in 5 years.
However, further depreciation of the pound is expected to increase inflation by eroding purchasing power.
Agreement with the IMF
The International Monetary Fund has approved a 46-month financing deal with Egypt under its $3 billion Extended Fund Facility (EFF).
The agreement provided for the immediate payment of $347 million to help meet Egypt’s balance-of-payments needs and support the budget.
But Egypt faces a stringent repayment plan for its external debt, which includes paying off $1.25 billion in bonds in the first quarter.
However, most of Egypt’s payments are made to multilateral organizations led by the International Monetary Fund, totaling $2.5 billion this year and $15 billion by the end of 2026, meaning Egypt it will have to pay at least $10 billion to the IMF, under the program The new EFF, according to HSBC calculations.
The Bank of England believes that “funding already committed from bilateral and multilateral sources does not appear to be sufficient by itself to meet immediate funding needs”, which is why the government should turn to alternative sources of funding.
