Global Economics names Contact Financial Holding the Fastest Growing Finance Company in Egypt    EGYPS 2022 begins a year of strategic energy dialogue    Egypt's stocks mixed on Tuesday as main gauge EGX 30 falls 0.63%    Egypt works on charting cooperation strategies with international institutions for 5 years: Al-Mashat    Maha karara joins AAIB as Head of Corporate Communications, Sustainability    Over 2.4 million newborns examined for hearing impairment: Health Ministry    Netflix releases trailer of Arab adaption of 'Perfect Strangers' film    Balqees to headline concert celebrating launch of streaming giant LIVENow in MENA    Sawsan Badr to be honoured at Aswan Women Film Festival    Al-Sisi follows up on 'Great Transfiguration Project' in St. Catherine    Cairo, London stress need to strengthen cooperation to face climate change    Foreigners account for 22.6% of Egypt's T-bills issuances in 1H 2021: CBE    MP Abdel Hady Al-Qasby calls government to facilitate and support NGOs    Egypt's ambassador to Italy passes away    Egypt confirms readiness to help African countries face terrorism and extremism    An estimated 235 million people needed humanitarian assistance and protection in 2021, an increase of 40% compared to 2020: IOM Egypt    Egypt, DRC discuss water cooperation during WYF    Egypt, DR Congo discuss boosting bilateral cooperation during WYF    Cameroonian police probe assault on three Algerian journalists covering AFCON    Pharaohs start AFCON 2021 campaign with fierce clash against Nigeria    Foreign Ministry opens capacity building course for French-speaking African diplomats    BRICS development bank admits Egypt as new member    Nermien Ismail Schools opens a new campus in O'West    Netherlands Embassy, E7kky Magazine celebrate success of 21 Egyptian women    Women make up 45% of Egyptian Atomic Energy Authority staff    Yas Island hosts travel partners at Formula 1 Etihad Airways Abu Dhabi Grand Prix 2021    Olaf Scholz becomes Germany's new leader, ending Merkel 16-year historic era    Egypt's trade with Nile basin countries climbs 26% y-o-y in 9 months    The unvaccinated prohibited from entry to Egypt state institutions starting December 1    Egypt's iron and steel exports jump 197% in 8 months    Ethiopia halts work at its embassy in Egypt for 'economic reasons'    It's a bit frustrating to draw at home: Real Madrid keeper after Villarreal game    Russia says it's in sync with US, China, Pakistan on Taliban    Shoukry reviews with Guterres Egypt's efforts to achieve SDGs, promote human rights    Sudan says countries must cooperate on vaccines    Johnson & Johnson: Second shot boosts antibodies and protection against COVID-19    Egypt to tax bloggers, YouTubers    Egypt's FM asserts importance of stability in Libya, holding elections as scheduled    Brazil calls up 8 EPL players for World Cup qualifying    We mustn't lose touch: Muller after Bayern win in Bundesliga    Egypt records 36 new deaths from Covid-19, highest since mid June    Egypt sells $3 bln US-dollar dominated eurobonds    Sisi calls on House, Senate to commence second legislative sessions on 3, 5 October    Gamal Hanafy's ceramic exhibition at Gezira Arts Centre is a must go    Italian Institute Director Davide Scalmani presents activities of the Cairo Institute for ITALIANA.IT platform    Qa'a play showing at Lycee El Horreya Theatre, Alexandria is a must go    On International Museum Day, Egypt opens two new museums at Cairo Airport    Old Cairo's Al-Fustat will be revamped on Egyptian President's directives    

Thank you for reporting!
This image will be automatically disabled when it gets reported by several people.

New destinations for the pound?
Published in Al-Ahram Weekly on 31 - 01 - 2019

Since its devaluation by almost 50 per cent in late 2016, the value of the Egyptian pound has been almost stable against the US dollar at around LE17.6.
It weathered the emerging markets storm last year that stripped many currencies of a significant part of their value. And this week the pound gained 30 piastres in a couple of days to reach a selling price of LE17.7 to the dollar from around LE18 in the middle of last week.
This was translated into a decline in yields on three and nine-month treasury bills to reach 18.11 per cent and 18.20 per cent, respectively, their lowest level since May, according to Pharos Holdings.
Some observers linked the change to a positive statement by International Monetary Fund (IMF) Managing Director Christine Lagarde on Egypt.
“The Egyptian authorities embarked on an ambitious economic reform programme in 2016 that is being supported by an IMF financial arrangement. Since then, Egypt has made substantial progress as is evident in the success achieved in macroeconomic stabilisation. Its growth rate is now among the highest in the region, the budget deficit is on a declining trajectory, and inflation is on track to reach the Central Bank of Egypt's (CBE) target by the end of 2019. Unemployment has declined to around 10 per cent, which is the lowest since 2011, and social protection measures have been expanded.” the statement noted.
Lagarde said she would recommend that the IMF board at its next meeting approve the review of Egypt's reform programme and disburse the fifth tranche of the loan made to Egypt.
However, others saw statements made by CBE Governor Tarek Amer to the Bloomberg News agency that Egypt's exchange rate was likely to see movement after a system that had guaranteed that foreign investors could repatriate dollars was terminated as the main reason behind the move.
Amer's words were seen by some as the CBE's way of announcing it would lift its hands from the market and leave the exchange rate to be determined entirely by market forces.
The CBE adopted the repatriation mechanism in 2016 as Egypt was facing a dollar crunch at the time that made it hard for foreign investors to send profits back home. The mechanism guaranteed that they could do so. However, the improvement in foreign currency inflows following the IMF loan agreement has fed the country's currency reserves to their highest-ever levels and made more foreign currency available.
Many reports have hinted before that the CBE has been using the banking system to indirectly intervene and support the pound, a goal that the repatriation mechanism also served to realise. The termination of this mechanism will make the exchange rate more volatile.
Another factor that has boosted the pound is the fact that the dollar is losing momentum internationally as there is almost a consensus that the US Federal Reserve will keep rates as they are when it meets this week. The trade war between China and the US is also weighing on the US dollar.
In his Bloomberg interview, Amer said that January was set to be the first month of net positive inflows for Egypt since May 2018. According to Reuters, Banque Misr and the National Bank of Egypt received $1.8 billion of inflows in January.
WHERE IS THE POUND HEADING? The pound could now be totally floated, despite Amer's earlier insistence that the CBE would step in to “confront any speculators or disorderly market practices”.
According to Capital Economics, a consultancy, if this happens “continued intervention would ignite investor concerns about the authorities' commitment to a more flexible exchange rate and would also receive a quick rebuke from the IMF”. It believes that Amer's comments were an attempt to signal to investors that substantial official intervention would not last much longer.
Most observers agree that the local currency could see a limited depreciation against the dollar by the end of 2019 and reach the LE20 threshold at the end of 2020.
“At this stage, we doubt that the CBE's loosening its grip would lead to a sharp fall in the currency. The pound no longer seems overvalued. And the external position has improved markedly since 2016 — the current account deficit stands at just 2.3 per cent of GDP and is covered by stable investment inflows,” Capital Economics said in a research note.
“We expect a modest depreciation to LE19 per dollar by the end of 2019 and to LE20 per dollar by the end of 2020.”
Egypt's foreign currency reserves are in a good shape, but investment and exports figures are not as high as expected.
Foreign direct investments (FDI) slowed down by 40 per cent during the first quarter of 2018/2019 to reach $1.1 billion on the back of the emerging markets crisis.
Non-oil exports are a major source of weakness in Egypt's balance of payments, declining by seven per cent on a quarterly basis in the first quarter of 2018/2019 against a growth of 8.6 per cent in the corresponding quarter of the previous year and highlighting concerns that exports are not benefiting from the devaluation.
Non-oil exports are falling under the pressure of capacity constraints driven by the high-interest rate environment and the sluggish pace of FDI inflows outside the petroleum sector, said Prime Research.
The government's funding deficit will be tightened by the receipt of planned Eurobonds. On Sunday, the Finance Ministry said it had selected the investment banks that will advise on Eurobonds issues slated for before June. Moreover, it is planning to offer its first bond issue in an Asian currency known as Samurai and Panda bonds.
Overall Egypt is planning to issue $3 to $7 billion worth of bonds this year. According to a new debt-control strategy, Egypt's Eurobond issues will be limited to $22 billion until the end of 2021-2022.
The Kuwait Fund for Arab Economic Development will also be providing Egypt with $1 billion in loans to be directed to infrastructure projects over the next three years.
On another positive note, remittances from Egyptians living abroad rose 5.7 per cent in the first 11 months of 2018 to $23.3 billion, from $22.1 billion during the same period last year, according to a CBE statement.
A series of multinational companies are expressing interest in increasing their investments in Egypt. Beside Mercedes, which is planning to resume its activities in the market after a five-year hiatus, Manfoods, the manager of McDonald's local activities, and Nestlé are planning to increase their presence in the market over the next five years.
Nestlé last week inaugurated a LE250 million factory for its coffee brand Bonjorno, which the Swiss food giant plans to position as an export for the region. The American IT giant Apple also approached the Egyptian delegation to the World Economic Forum in Davos last week to learn more about investment opportunities in Egypt.
INTEREST RATES? For Radwa Al-Sweify, head of research at Pharos Holdings, now is the perfect time for interest rate cuts in Egypt.
“On the US front, there is wide consensus that it will keep rates unchanged. On the local front, with the high demand from foreign investors for treasury instruments in pounds, the consequent influx of dollars into the Egyptian banking system, and the resulting strength of the pound at the same time when we project a very supportive inflation outlook over January-May 2019, Pharos believes that the environment is ripe for an interest rate cut in the February 14 and/or the March 28 CBE meetings.”
Al-Sweify expected either a one per cent cut in rates or a 0.5 per cent cut in each of the next two meetings.
“The cut in rates might result in some pressure on the pound, but with the current strength in the exchange rate, any potential emerging pressure will not push the exchange rate higher than the LE18 mark and consequently will not impact inflation,” she added.

Clic here to read the story from its source.