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On the way to recovery?
Published in Al-Ahram Weekly on 30 - 11 - 2016

Three weeks after the floatation of the pound, hard currency is beginning to flow steadily back into the Egyptian banking system. Before the floatation, the disparity between the dollar's official and unofficial rates had caused people with hard currency to shun the official financial system in order to make use of the higher rates on the parallel market.

A few days before the floatation, the pound had slid to a record low of LE18 to the dollar on the unofficial market, bringing the economy to a stalemate. In a bid to eliminate the black market, the Central Bank of Egypt (CBE) floated the Egyptian pound on 3 November, with the exchange rate for the currency now being determined by supply and demand.

This week, the dollar was trading at around LE17.5 in the banks, compared to LE8.8, the official rate before the floatation.

CBE sub-governor Tarek Fayed told the state news agency MENA last week that local banks had collected around $3 billion in the first two weeks after the CBE's decision to liberalise the pound's exchange rate against foreign currencies.

One source at one of Egypt's private banks said that his bank was receiving a steady flow of foreign currency, whether through individuals selling dollars or remittances. “The situation is very positive and to a large extent we are getting back to normal,” he told Al-Ahram Weekly.

The scarcity of dollars in the local banks has been causing trouble for businesses and individuals alike. People travelling abroad have had difficulty in obtaining dollars from the banks, while importers have struggled to open lines of credit.

The situation now is different, with the source saying that his bank, as well as other banks, were now opening lines of credit to importers regardless of the nature of the goods imported.

Before the floatation, the CBE issued a decision to prioritise essential goods when providing importers with foreign exchange, but after liberalising the pound it cancelled this decision.

This means that the banks are now obliged to provide dollars to all importers without prioritisation, which is good news for importers.

The source added that his bank was also selling dollars to individuals who were travelling abroad or for purposes of education or treatment abroad, thanks to the availability of foreign currency in his bank.

Many Egyptians are now leaning towards saving their money in order to make use of the high interest rates on deposits offer in the banks. To help stabilise the Egyptian pound after the CBE gave up its long-held US dollar peg, Egypt's two largest state-owned banks, the National Bank of Egypt (NBE) and Banque Misr, offered 18-month certificates of deposit (CDs) at 20 per cent and three-year certificates of deposit at 16 per cent interest.

The turnout for the certificates has been enormous, with people queuing for long hours in the banks to buy the certificates. “I have never seen interest rates on CDs as a good destination for my savings, but I was tempted by the 20 per cent rate and went to deposit my money in the bank,” said Doaa Adel, a 40-year-old private-sector employee.

NBE Chairman Hisham Okasha said that his bank's high-yielding CDs had raised LE85 billion, according to Reuters, while Banque Misr has raised LE43 billion from CDs, Al-Ahram reported last week.

Following in the footsteps of the NBE and Banque Misr, the commercial banks have raised interest rates on their CDs to attract depositors.

The source said that his bank had raised the interest rate on three-year CDs from 11 per cent to 15 per cent, and the interest rate on five-year CDs from 12 per cent to 14 per cent.

He said that the hikes had encouraged people to deposit their money, however the money deposited was not “fresh funds.”

He said that people were not depositing fresh money, but instead were transferring money from their savings accounts or were taking out loans and putting the money into CDs.

Egypt has struggled to attract dollar inflows since the 25 January Revolution in 2011 which scared off tourists and foreign investors, main hard currency earners. It hopes the floatation will restore confidence.

CBE Governor Tarek Amer said earlier this year in an interview that he expected to see $15 billion to $20 billion in foreign investments in Egyptian government treasury bills and bonds by the end of 2016.

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