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Investing.com – Egyptian markets are awaiting the central bank’s Dec. 22 decision, which comes after the International Fund approved Egypt’s $3 billion loan receipt following the first loan installment.
The decision comes amid concerns about an exceptional meeting similar to previous meetings that could see the Egyptian pound depreciate again, especially after the fund approved the loan with the condition of obtaining a permanent flexible exchange rate.
Interestingly, the official price of the pound is currently near £24.7 per dollar levels, while Reuters and CNBC reported, according to foreign exchange market sources, that the dollar price in the parallel market has approached £40. for the dollar.
200 points
The research department of HC Securities and Investment Group has expressed its expectations regarding the possible decision of the Monetary Policy Committee in light of the current situation in Egypt.
He expected Egypt’s central bank to raise its interest rate by 200 basis points to tackle inflation at its next meeting scheduled for Thursday, December 22.
This comes after the Federal Reserve concluded its two-day meeting, in which it agreed to raise the interest rate by 50 basis points, bringing the total increase to 425 basis points since the start of 2022.
fight inflation
The HC Securities and Investment report revealed: “The Monetary Policy Committee is expected to raise the interest rate by 200 basis points to tackle inflation and attract inflows that benefit from price differences.
The report found that inflation accelerated in November, rising 2.3% month-on-month and 18.7% year-on-year, topping the bank’s estimate of 16.5%.
This acceleration, coupled with the current shortage of foreign capital inflows, led to our expectation of an annualized inflation rate of 19.1% in December, the bank said.
The true value
Former central bank governor Hisham Ezz Al-Arab, a board member of Commercial International Bank (EGX), said he was confident that Egypt’s economy would overcome the current exchange rate problems.
Ezz Al-Arab added that the government is moving in the right direction through a series of economic reform measures announced by the agreement with the IMF and that the central bank’s leadership is able to control the pace of the market.
Ezz Al-Arab said: “Currency is one means of monetary policy, and it is a means, not a goal.” He added that the local currency is two pounds cheaper than its value against the dollar.
Black market
Hisham Ezz Al-Arab said the black market has been imposing unwarranted numbers as the situation has been exploited, and rumors have been raised to profit from it, such as the two leaks on the Central Bank’s extraordinary meeting last Thursday evening, and before that that the IMF would not accept the program with Egypt.
Ezz Al-Arab revealed that some importers obtained the dollar exchange rate from banks at the official rate and held consumers responsible for the final product at black market exchange rates.
Ezz Al-Arab said the main goal of the government and the central bank is to stabilize prices by targeting inflation, stressing that the current problem is the existence of a funding gap following the outflow of hot money just before the war and global inflation.
An imminent turning point
Ezz Al-Arab added that there are lessons learned from the crisis, recognized by the state, and in line with the fund requirements announced by the government before even the deal or moving forward with it.
The former adviser to the central Governor said he was optimistic about the next period, foreseeing the beginning of a turnaround with the exit of goods, production needs and goods that are stacked in the ports.
Hisham Ezz Al-Arab indicated that Egypt is moving in the right direction and there is full confidence in the management of the Central Bank to put things right.
extraordinary meeting
The French bank expected the Central Bank of Egypt to move more decisively towards floating the pound and raise interest rates by at least 2%.
The bank also expected, in its research note, that the IMF would approve the extended facility deal by the end of this year, but said the fund was, however, unlikely to disburse the first tranche, estimated at 750 million dollars, in Egypt before the central bank takes a decisive step towards a floating exchange rate.
BNP Paribas (EPA:) has estimated that the price of the dollar against the pound will rise to £33 by the end of this year and around £37 by the end of the first quarter of next year. average inflation rate to reach 22% next year.
The fund’s decision… and immediate payment
And on Friday, the International Monetary Fund announced its Executive Board’s approval of a 46-month cooperation program under the Extended Fund Facility (EFF) for Egypt at about $3 billion (equivalent to 115, 4% of Egypt’s share in the fund).
The decision by the Fund’s Executive Board allows for an immediate payment of $347 million to help meet balance-of-payments needs and support the budget, according to a Fund statement.
Another 14 billion
The IMF also said that the Extended Fund Facility agreed for Egypt should encourage the availability of additional financing for Egypt over the course of the programme, amounting to around $14 billion, from its international and regional partners.
The fund added that this additional financing will include fresh financial resources from GCC countries and other partners through the ongoing sale of state-owned assets and traditional financing channels by bilateral and multilateral creditors.
exchange rate prediction
Hani Geneina, an economist and professor at American University, had expected larger moves in the exchange rate this week and an increase in the daily exchange limit.
Mona Badira, an economist, said that the exchange rate will stabilize only when the state is able to ensure sufficient financial needs in dollar liquidity to cover pent-up demand and bridge the gap between supply and demand in the foreign exchange market , which is causing the emergence of the parallel market during the current period.
Bdeir added that there is unlikely to be a significant drop in the price of the pound in the coming period unless the central bank has sufficient liquidity to meet demand in order to finance the import of goods, particularly required basis.
Fund requirements
Specifically, the fund specified that the policy package included in the program includes 4 measures:
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1- A permanent move to a system of floating exchange rates to improve resilience to external shocks and to rebuild external protective buffers
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2- Implement a monetary policy aimed at gradually reducing inflation rates in line with the objectives of the Central Bank, as well as strengthening the transmission mechanism of the effects of monetary policy, including through the cancellation of support for loan programmes.
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3- Fiscal control and debt management to ensure a decline in the public debt-to-GDP ratio and contain total financial needs, increasing social spending and strengthening social safety nets to protect vulnerable groups and adequately managing national investment projects that realizes the sustainability of the external position and economic stability.
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4- Large-scale structural reforms to reduce the state footprint, ensure fair competition among all economic entities, facilitate private sector-led growth, and improve governance and transparency in the public sector.
Overview of previous meetings
It is worth noting that, at an extraordinary meeting on October 27, the Monetary Policy Committee of the Central Bank of Egypt decided to raise the interest rate by 200 basis points and switch to a permanent floating exchange rate regime.
In its latest meeting, the Central Bank of Egypt decided to leave it to the forces of supply and demand to determine the value of the Egyptian pound against a basket of other foreign currencies, resulting in a 14% decline of the currency price that day.
As a result, this has led to an overall increase in interest rates in Egypt in 2022 by 500 basis points, while the local currency has depreciated by around 60% from 20 March levels of £15.7 per dollar to current levels .
