The gap between the Egyptian pound’s official exchange rate against the dollar and its price in the parallel market has widened, putting pressure on Egypt ahead of an important International Monetary Fund board meeting next week.
Still missing Hard currency It continues in Egypt despite the double devaluation of the pound this year.
On Dec. 16, the IMF is expected to consider Egypt’s request for $3 billion in extended financing to help shore up its public finances. Egypt and the Fund announced agreement on the financing package on 27 October at the expert level.
Ahmed Kujuk, assistant finance minister, said Wednesday he expects the IMF board to approve the package at its meeting.
When Egypt announced the expert-level deal, it said it had moved to “a permanently flexible exchange rate system, which leaves supply and demand factors to determine the value of the Egyptian pound against other foreign currencies.”
In a statement issued by the Council of Ministers today, Friday, Kujouk confirmed that the agreement with the IMF aims to achieve a flexible exchange rate.
Black market traders sell dollars at £32 and £33, compared with the official rate of around £24.6 to the dollar.
The widening gap between the official exchange rate and the parallel market rate has prompted many analysts to say that Egypt could bring the pound down again before the IMF meeting, and it could also raise interest rates.
“We think we will see another cut or adjustment, but we do not expect a cut to the 32-34 level as suggested by the London Stock Exchange or the black market,” said Jap Meagher of Arqaam Capital.
The pound fell 14.5% against the dollar on October 27. Since early November, the central bank has allowed the policy rate to fall gradually, averaging around £0.01 per day.
A number of analysts said the pound has weakened enough under their various fair value models, but that it may take an adjustment period to resolve the import backlog and confidence to return.
“The latest devaluation brought it down to fair value,” said Charles Robertson of Renaissance Capital.
Egypt’s Finance Ministry predicted that the period of rising inflation following the shift to exchange rate flexibility would be short, saying this is what happened in the wake of the previous wave of exchange rate liberalization in November 2016 .
