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)
TT
20

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.



Gold Prices Retreat from Record High as Investors Cash In

A jeweller shows a gold bar at his shop in downtown Kuwait City on May 20, 2024. (Photo by YASSER AL-ZAYYAT / AFP)
A jeweller shows a gold bar at his shop in downtown Kuwait City on May 20, 2024. (Photo by YASSER AL-ZAYYAT / AFP)
TT
20

Gold Prices Retreat from Record High as Investors Cash In

A jeweller shows a gold bar at his shop in downtown Kuwait City on May 20, 2024. (Photo by YASSER AL-ZAYYAT / AFP)
A jeweller shows a gold bar at his shop in downtown Kuwait City on May 20, 2024. (Photo by YASSER AL-ZAYYAT / AFP)

Gold prices pulled back from a record high on Thursday as investors booked profits following a rally driven by concerns around US President Donald Trump's latest wave of tariff policies.

Spot gold was down 0.3% at $3,331.73 an ounce, as of 1120 GMT, after touching a record $3,357.40 earlier in the session. Bullion has gained nearly 3% this week.

US gold futures were steady at $3,346.30.

"Likely the reversal off fresh all-time highs can be attributed to some profit-taking on the highs. A slightly firmer tone to an otherwise weak US dollar likely took the edge off gold," said Ross Norman, an independent analyst, Reuters reported.

"Price dips are well bought into, suggesting underlying sentiment is very positive."

The dollar index recovered from near a three-year low on Thursday, making gold more expensive for holders of other currencies.

Gold rose 3.6% on Wednesday, driven by Trump's order to open a probe into potential tariffs on all critical mineral imports, in addition to reviews into pharmaceutical and chip imports.

Meanwhile, US Federal Reserve Chair Jerome Powell said on Wednesday the Fed would wait for more data before changing interest rates, while also cautioning that Trump's tariff policies risked pushing inflation further from the central bank's goals.

Gold, traditionally viewed as a hedge against inflation, also tends to thrive in a low-interest rate environment.

"The market's interpretation seems to be that gold would benefit either way," said Carsten Menke, an analyst at Julius Baer.

Demand for physical gold was tepid in India this week as a blistering price rally curbed purchases, while premiums held firm in top consumer China.

"Reduced participation in the rally by traditional gold buyers might signal the move is nearer the end than the beginning. But it’s hard to see a scenario where gold would correct lower just now, other than being technically overbought and overextended," Norman said.

Spot silver dropped 1.1% to $32.39 an ounce, platinum shed 1.4% to $954.12, and palladium fell 2.5% to $949.26.