The Egyptian pound has depreciated to new lows against the dollar following instabilities sparked by a controversial constitutional declaration two weeks ago. It sold for LE6.17 against the US dollar on Tuesday compared to LE6.1 a week. The pound has been depreciating for the last two years, but has been falling more rapidly since the beginning of December. “There is a heavy demand on the dollar at the moment, and no one can predict how high it can reach in the next few days and weeks,” says Ezzat Abu Zeid, executive director of Brent Exchange. The Central Bank of Egypt (CBE) appears to be confused, he said. The pound has depreciated from the beginning of this month by 0.6 per cent compared to a depreciation of 4.4 per cent since January 2011, according to Pharos Holding for Financial Investments. “The political unrest and fast-paced turn in events on the Egyptian streets has taken its toll on the CBE's efforts to stabilise the value of the pound,” said Abu Zeid. He explained that investors are abandoning their positions in the local stock market in search for safer investment havens. The decline in the Egyptian pound in exchange of the green-backed currency is mainly due to the CBE's reluctance — or inability — to support it by injecting the now scarce dollar in the market. The CBE has run through more than $20 billion of its foreign reserves since the uprising to plug a widened balance of payments gap. Reserves now stand at $15.03 billion. Beltone Financial expects the rate to stabilise with a modest depreciation at LE6.2 per dollar during FY2012/13 in case the International Monetary Fund (IMF) approved its $4.8 billion loan to Egypt. However, without an IMF loan and associated funding from other donors, the rate should witness a deprecation of 15 per cent, to hit LE7 towards the second half of 2012/2013 and would average LE6.5 during fiscal year 2012/2013. Pharos Holding for Financial Investments meanwhile upgraded its pound depreciation risk from “low to medium and expects further upgrades in its risk assessments if the IMF loan is not approved. “We will revise the risk level to ‘high' if the loan approval is delayed to early 2013 and to ‘eminent' if the loan approval is delayed indefinitely.”
