Egypt could devalue currency this week

11 July 2016

The CBE devalued the pound earlier this year in a bid to curb the black market and stablise the currency shortage

The Central Bank of Egypt (CBE) may devalue the Egyptian pound on 12 July, according to sources close to the CBE who have told MEED that devaluation is imminent.

Sources at the central bank as well as leading private banks in Egypt have told MEED that the recent comments by the governor of the CBE, Tarek Amer, have left many in the market believing that devaluation will happen during this week’s dollar auction.

In a press statement earlier this month Amer stressed that stabilising the price of the Egyptian pound had been a significant mistake that cost the state billions of dollars over the past five years.

On 14 March the Egyptian pound was devalued by 14.5 per cent at the new rate of E£8.85 to the US dollar in a special central bank auction.

The CBE devalued the pound earlier this year in a bid to curb the black market and stablise the currency supply amid a shortage of dollars.

Observers expect a managed devaluation over 2016 to bring official exchange rates closer to black market rates which fluctuate around E£9-10 to the dollar.

Despite the long-term advantages of devaluation, in the short-term and since the devaluation there has been a negative impact on the local market. On 19 June the CBE decided on a one per cent increase in its basic interest rate allowing for deposit and lending rates to reach 11.8 per and 12.8 per cent respectively.

The decision took the central bank interest rates to an 11-year high. The rate hike follows news that inflation in Egypt increased by 12.4 per cent year-on-year in May as price pressures continue following the devaluation of the pound in March this year. 

Egypt’s headwinds have made 2016 difficult so far

So far this year the government’s reform plans has frustrated ordinary Egyptians as well as industries and companies.

Between interest rate hikes and currency devaluations Cairo is attempting a difficult balancing act that is unlikely to succeed. Read more. 

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