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Investing.com – The Egyptian pound’s third float appears to have begun just days into the new year, with expectations for it coming in mid-December after it received the first installment of its International Monetary Fund loan.
The pound fell after the sudden decision by Egyptian banks on Wednesday to issue savings bonds for a year with a yield of 25%, to fall to the maximum level of 26 pounds to the dollar, a drop of more than 1, £75 a time.
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25% testimonials
Today, Wednesday, Egypt’s national banks decided to issue investment certificates with a higher yield than experts and analysts expected, following the recent decision by the Central Bank of Egypt on interest rates.
Today, Banque Misr and the National Bank of Egypt announced the issuance of a one-year savings certificate with 25% interest to be spent at the end of the period or 22.5% to be spent monthly.
Experts believe that the drop in the value of the pound today was preceded by the announcement of investment certificates with a higher than expected yield to eliminate dollarisation and attract liquidity to new issues.
Interestingly, over the course of two weeks, dollar exchange rates against the pound experienced stability, coinciding with limited moves that occurred only twice during 11 trading sessions, two plates at a time.
pound now
According to official exchange rates, the pound fell in Egyptian and private banks to levels above 26 pounds to the dollar, falling 6.5% in just hours.
In private banks, dollar-to-pound exchange rates today, Wednesday, averaged £26.60 per dollar selling, and £26.50 per dollar buying, in Mashreq Bank (DFM:) as the highest price, while in most banks it averaged £26.55 to the dollar.
On Wednesday, rates in national banks, the National Bank of Egypt and Banque Misr, recorded £26.30 selling levels and £26.25 buying levels.
The rates screen from the Central Bank of Egypt shows the current change in exchange rates, as the pound is posting levels of 26.48 pounds per dollar in sells and levels of 26.36 pounds per dollar in buys.
The third float has started
Analysts said the pound has depreciated enough under their different fair value models, but that the currency needs an adjustment period to resolve the piled-up imports problem and confidence return.
“We believe we will see another devaluation or adjustment in the value of the currency, but we do not expect a devaluation to the 32-34 level as the black market suggests,” said Jap Major of Arqaam Capital.
Markets were expecting a third fluctuation in exchange rates after Egypt received the first installment of the International Monetary Fund (IMF) loan last December, amounting to $750 million.
The International Monetary Fund called on Egypt at that time to continue to adopt the floating exchange rate policy to eliminate the distortions of countries to address the foreign exchange shortage crisis.
The fund established the abolition of all restrictions on capital and current transfers, as well as the abolition of restrictions on dollar deposits and their use in import transactions.
Certification decision
Banking expert Hani Genena earlier said that in light of the central bank’s interest-raising decisions, savings bonds with a very high yield are expected to be issued, breaking the 18% barrier and reaching 20%. .
Genena said these certificates will be offered for a short period ranging from 6 months to a year, and then the work of these certificates will be suspended, as happened with the 18% certificates, with the aim of obtaining financial returns for the banks.
Central resolution
And last Thursday the central bank decided to raise interest rates by 300 basis points on deposits and loans, and the central bank’s main operating rate to reach the level of 16.25, 17.25 and 16.75% respectively and credit and discount at 16.75%.
And the National Bank of Egypt and Egypt had announced, after the Central Bank had raised the interest rate by 2%, in the penultimate extraordinary meeting on October 27, 2022, to issue investment certificates with a yield of 17.25 % for a period of 3 years.
Then Banque du Caire issued an investment certificate with the same yield, followed by Nasser Social Bank, which issued an investment certificate with a yield of 17.50%.
banking forecasts
International investment banks, including Standard Chartered (NASDAQ:) and HSBC, expected the Egyptian pound to continue depreciating against the US dollar in the coming weeks.
According to banking forecasts published by Bloomberg, the Egyptian pound is likely to reach levels ranging from 26 pounds per dollar to levels close to 27.8 pounds per dollar in the coming period.
The agency said Egypt would move to further reduce the pound’s exchange rate against the dollar, while expecting further declines over the next 12 months.
The agency underlined the weak flexibility of Egypt’s exchange rate with respect to market conditions, which should see a further decline in the coming months.
