Egyptian Economy Awaits Dollar Inflows after Currency Liberalization

People look at traditional decorative Ramadan lanterns called "Fanous" displayed for sale at stalls, ahead of the holy month of Ramadan at Sayyidah Zaynab district in Cairo, Egypt March 10, 2024. (Reuters)
People look at traditional decorative Ramadan lanterns called "Fanous" displayed for sale at stalls, ahead of the holy month of Ramadan at Sayyidah Zaynab district in Cairo, Egypt March 10, 2024. (Reuters)
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Egyptian Economy Awaits Dollar Inflows after Currency Liberalization

People look at traditional decorative Ramadan lanterns called "Fanous" displayed for sale at stalls, ahead of the holy month of Ramadan at Sayyidah Zaynab district in Cairo, Egypt March 10, 2024. (Reuters)
People look at traditional decorative Ramadan lanterns called "Fanous" displayed for sale at stalls, ahead of the holy month of Ramadan at Sayyidah Zaynab district in Cairo, Egypt March 10, 2024. (Reuters)

The Egyptian Central Bank’s move to liberalize the exchange rate of the local currency against the US dollar and raise interest rates by 6 percent is expected to have both positive and negative effects on the country’s economy, according to experts.

A positive result is represented by the anticipated dollar flows into the Egyptian market, as experts pointed to the importance of good management to achieve the utmost benefit for the overall economy.

On the other hand, the high inflation rate caused by the currency devaluation is one of the main negative repercussions of the new decision.

Egypt is likely to receive financing amounting to $3 billion from the World Bank, as part of a financing package from the International Monetary Fund (IMF) with an expected value of $20 billion, according to Finance Minister Mohamed Maait.

Cairo and the IMF had agreed to increase the value of the financing program to $8 billion from $3 billion, in addition to about $1 to $1.2 billion from the Fund’s sustainability program.

Last week, the Central Bank announced that it would raise interest rates by 600 basis points and allow the exchange rate to fluctuate according to market mechanisms, bringing the dollar exchange rate to an average of 49.5 pounds in commercial banks after it had stabilized at 30.9 pounds for nearly a year.

Maait said goods worth $13 billion have been released since the first of January until now.

The demand for the dollar is expected to continue until the release of goods seized at Egyptian customs and ports, which some estimated at about $8 billion.

As the economy awaits positive indicators to push it towards sustainable growth, inflation rates last February were higher than expectations, as they jumped to 35.7 percent, ending a series of declines that began in October, driven mainly by the rise in food prices.

Data from the Central Agency for Public Mobilization and Statistics on Sunday attributed the increase to “a rise in the prices of the meat and poultry by 25 percent, cereals and bread by 14.2 percent, fish and seafood by 11.5 percent, and dairy, cheese and eggs by 12.8%, in addition to oils by 14.1%...”

Risk analyst at Nile Financial Leasing Company Zaher Khalif expected the inflation rate to continue to rise during the coming period as a result of the devaluation of the pound.



Dollar Hobbled by Economic Worries; Euro Remains in Favor

US dollar drifted within a tight range on Monday, pressured by lower Treasury yields - Reuters
US dollar drifted within a tight range on Monday, pressured by lower Treasury yields - Reuters
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Dollar Hobbled by Economic Worries; Euro Remains in Favor

US dollar drifted within a tight range on Monday, pressured by lower Treasury yields - Reuters
US dollar drifted within a tight range on Monday, pressured by lower Treasury yields - Reuters

The dollar hovered near a five-month low against major peers on Monday, bruised by President Donald Trump's erratic trade policies and soft economic data, at a time when other currencies, including the euro, benefit from domestic drivers.

The euro was last at $1.0905, up 0.2% on the day, and heading back towards the $1.0947 it hit last week, its highest since October 11.

The Japanese yen was also marginally stronger on the day at 148.48 per dollar, again after hitting its strongest in five months last week at 146.5 to the dollar.

That left the dollar index, which measures the US currency against its six major counterparts, at 103.5, just off its five-month trough of 103.21 reached last Tuesday, Reuters reported.

Currency markets have undergone a shift in recent months, as traders re-evaluate their initial expectations that Trump's economic policies would both support the dollar and cause other currencies to weaken.

In fact the reverse has happened, and analysts at Societe Generale said on Monday that they had changed their currency forecasts "to reflect Germany's planned fiscal changes, the US economy's self-inflicted (relative) fragility, and Japan’s escape from deflation".

They see the euro at $1.13 by year-end and the yen at 139 per dollar.