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After its jump.. Where is the dollar price against the pound heading in the period?

05:29 PM

Sunday 30 October 2022

Books – Manal Al-Masry and Mustafa Eid:

Experts and bankers expected the dollar’s price to continue rising against the pound during the next few days in light of the sharp drop in the pound’s exchange rate against foreign currencies, with a flexible exchange policy in the Egyptian banking sector starting last Thursday.

Experts and bankers that Masrawy spoke to believe that the dollar price is expected to reach or exceed 25 pounds in the coming days.

On Thursday, the Central Bank of Egypt announced the adoption of a flexible exchange rate system through which the exchange rate reflects the value of the Egyptian pound against other foreign currencies through the forces of supply and demand, “with priority given to the central bank’s primary objective of achieving price stability.”

Following this announcement, the pound’s exchange rate witnessed a significant decline in last Thursday’s trading, and the dollar’s ​​price against the pound rose by about 16% (an increase of more than 3 pounds), bringing the dollar’s ​​exchange rate to about 23 pounds in banks.

The price of the dollar against the pound continued to rise significantly during trading today, Sunday, to exceed in some banks the level of 24 pounds.

Expectations of a rise above 25 pounds

Hani Genena, an economist and lecturer at the American University in Cairo, expected the dollar price to break the level of 25 pounds “easily” during the next few days, but it is not known to what level the price might reach.

Walid Nagy, Vice President of the Egyptian Land Bank, agreed with him, as he expected that the price of the dollar would rise to the level of 25 pounds during the coming period, after it jumped last Thursday to 23 pounds, and then to 24 pounds in Sunday’s transactions, “which is an expected move due to the large number of The pressures on the pound during the last period.

In the same direction, a member of the board of directors in a private bank expected that the exchange rate of the pound against the dollar would go through violent fluctuations, and that the dollar would exceed the level of 25 pounds in the coming days due to the increased demand for it, and speculators insisted not to sell the dollar until they were assured of continuing in a free exchange rate and meeting Banks for all orders.

However, Hani Genena believes that the Central Bank will not stand idly by if the strong rise of the dollar continues, as it has tools, other than the use of foreign exchange reserves, to control the exchange market indirectly, including raising interest rates again.

He told Masrawy: “The probability of 80% or more will raise the interest again,” without adhering to the dates of the announced meetings of the Monetary Policy Committee, as happened in the last decision last Thursday.

The Central Bank of Egypt raised interest rates by 2% during an extraordinary meeting of the monetary policy committee of the bank last Thursday, coinciding with leaving the determination of the exchange rate for supply and demand, instead of waiting for the committee until the date of its previously scheduled meeting on Thursday, November 3rd.

After the increase, the interest rates of the Central Bank became 13.25% for deposits, and 14.25% for lending.

Hani Geneina stated that raising interest rates again at the Central Bank would allow banks to issue shorter-term and higher-priced certificates than those currently offered in the market, “everything unexpected may happen in this regard.”

Last Thursday, the National Bank of Egypt, Egypt and Cairo announced, coinciding with the interest rate hike in the Central Bank, the issuance of 3-year savings certificates with an annual return of up to 17.25% to be paid annually.

Geneina said that the Fund is currently putting Egypt to the test to ascertain the extent of its commitment to implementing the exchange rate flexibility policy, especially in light of the current period that witnesses a gap between demand and supply of foreign currencies, before approving the loan at the Fund’s Executive Board meeting next December.

On Thursday, Egypt announced that it had reached an agreement with the International Monetary Fund at the expert level to cooperate in a 46-month economic reform program that includes $3 billion in financing, in addition to making $1 billion available from the Fund’s Sustainability Fund, as well as $5 billion from development partners.

Egypt must obtain the approval of the Executive Board of the International Monetary Fund for the program in order to obtain financing.

Geneina stated that the fund is awaiting how Egypt will act in the event of an increase in the dollar’s ​​prices against the pound, and is working to ensure that foreign exchange reserves are not used as agreed upon between the two sides, believing that the only direction expected from the Central Bank is to return to using the interest-raising tool again. and strongly.

Expectations of a decline again

Walid Nagy, according to what he told Masrawy, suggested that the dollar price would start to decline again against the pound after absorbing the demand shock and meeting waiting lists in banks to be an essential step in eliminating the black market, especially with the abundance of dollar resources in banks and meeting all requests.

Nagy added that Egypt witnessed, in the first flotation of the exchange rate in November 2016, violent movements, during which it jumped to above 19 pounds from 8.88 pounds before the float, and then went back down again to the level of 15.76 pounds after several months.

He explained that this is not the first time that Egypt has liberalized the exchange rate (devaluation of the currency) in order to reform the difficult economic conditions, as well as what happened last March with pressure on the dollar after the Russian-Ukrainian conflict.

Walid Nagy pointed out that the Central Bank will issue the pound index against a basket of foreign currencies, which is a correct decision and contributes to giving a clear picture of the local currency and its purchasing value to reflect its strength in a more transparent manner, especially with Egypt not being linked to America as a primary trading partner, but it deals with many countries regarding trade.

He stressed the need to work on increasing Egypt’s dollar resources from tourism, exports and direct investments, and enhancing remittances from Egyptians working abroad to enhance the pound’s strength.

A member of the board of directors in one of the private banks told Masrawy that he expects the dollar to return to decline below the level of 23 pounds before the end of this year, after absorbing the shock of the liberalization of the exchange rate and meeting the demand for the currency, but there will be no standards governing the movements of the dollar price except by increasing Egypt’s foreign exchange resources. .

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