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.



Oil Slips as Iran-Israel Conflict Enters Sixth Day

FILE PHOTO: A view shows an oil pump jack outside Almetyevsk in the Republic of Tatarstan, Russia, June 4, 2023. REUTERS/Alexander Manzyuk/File Photo
FILE PHOTO: A view shows an oil pump jack outside Almetyevsk in the Republic of Tatarstan, Russia, June 4, 2023. REUTERS/Alexander Manzyuk/File Photo
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Oil Slips as Iran-Israel Conflict Enters Sixth Day

FILE PHOTO: A view shows an oil pump jack outside Almetyevsk in the Republic of Tatarstan, Russia, June 4, 2023. REUTERS/Alexander Manzyuk/File Photo
FILE PHOTO: A view shows an oil pump jack outside Almetyevsk in the Republic of Tatarstan, Russia, June 4, 2023. REUTERS/Alexander Manzyuk/File Photo

Oil prices fell on Wednesday, after a gain of 4% in the previous session, as markets weighed up the chance of supply disruptions from the Iran-Israel conflict and as they ponder a direct US involvement.

Brent crude futures fell 93 cents, or 1.2%, to $75.52 a barrel by 0918 GMT. US West Texas Intermediate crude futures fell 88 cents, also 1.2%, to $73.96 per barrel.

US President Trump warned on social media on Tuesday that US patience was wearing thin, and called for an "unconditional surrender" from Iran.

While he said there was no intention to kill Iran's leader Ali Khamenei "for now," his comments suggested a tougher stance toward Iran as he weighs whether to deepen US involvement.

A source familiar with internal discussions said one of the options Trump and his team are considering included joining Israel on strikes against Iranian nuclear sites.

A direct US involvement threatens to widen the confrontation further, putting energy infrastructure in the region at higher risk of attack, analysts say.

"The biggest fear for the oil market is the shutdown of the Strait of Hormuz," ING analysts said in a note.

"Almost a third of global seaborne oil trade moves through this chokepoint. A significant disruption to these flows would be enough to push prices to $120 [a barrel]," the bank added.

Iran is OPEC's third-largest producer, extracting about 3.3 million barrels per day (bpd) of crude oil.

Meanwhile, Iranian ambassador to the United Nations in Geneva Ali Bahreini said on Wednesday that Tehran has conveyed to Washington that it will respond firmly to the United States if it becomes directly involved in Israel's military campaign.

Markets are also looking ahead to a second day of US Federal Reserve discussions on Wednesday, in which the central bank is expected to leave its benchmark overnight interest rate in the range of 4.25% to 4.50%.

However, the conflict in the Middle East and the risk of slowing global growth could potentially push the Fed to cut rates by 25 basis points in July, sooner than the market's current expectation of September, said Tony Sycamore, market analyst with IG.

Lower interest rates generally boost economic growth and demand for oil.

Confounding the decision for the Fed, however, is the Middle East conflict's potential creation of a new source of inflation via surging oil prices.

US crude stocks fell by 10.1 million barrels in the week ended June 13, market sources told Reuters, citing American Petroleum Institute figures on Tuesday. Official Energy Information Administration data is due later on Wednesday.