Cairo – As part of measures to ensure macroeconomic stability and provide sustainable and thorough growth to Egypt, the country’s Central Bank announced this Thursday (27) the adoption of a floating exchange system for the Egyptian pound to foreign currencies. The main goal is for rates to reflect the forces of supply and demand. The Central Bank aims at price stability.
On the announcement day, exchange rates for the dollar at the Central Bank of Egypt went over 22.96 pounds. Commercial banks’ rates surpassed 23 pounds, from 19.70 at the end of the trading session on Wednesday (26) and even before the publishing of the Central Bank’s decisions on Thursday morning. Pictured above, Hassan Abdullah, Egyptian Central Bank governor
The Central Bank also confirmed it would gradually cancel the instructions issued on February 13, 2022, that provided for the mandatory use of letters of credit in import financing operations. The lift of the requirement is expected to occur by December 2022 and is intended to serve as an incentive for economic activity in the medium term.
The Central Bank of Egypt will also work towards constructing and developing the financial derivatives market to deepen the foreign exchange market and raise the levels of liquidity in foreign currency. The Monetary Policy Committee decided, at an extraordinary meeting held this Thursday, to increase overnight deposit rates, loans, and the rate on the Central Bank’s main operation to reach 13.25%, 14.25%, and 13.75%, respectively.
In the same context, markets for many commodities witnessed confusion and paralysis in the buying and selling movement in anticipation of exchange rate stability. The exchange rate fluctuation implies the repricing of products, especially imports, such as gold, automobiles, and other non-essential goods for the country.
Private sector
The ANBA team in Cairo spoke with exporters and importers from different sectors. Their views varied on the extent of the resolution’s impact on trade and the size of the expected increase in general inflation and commodity prices.
Sherif El Sayad, head of Egypt’s Engineering Industries Export Council, highlighted the need to expand exports in the coming period in parallel with the decisions. He believes increasing the number of exporters to 20% of companies operating in Egypt is essential. He also stressed the need to increase each company’s exports to exceed 40% of production capacity, ensuring the continuity of production and attracting the foreign currency needed to import raw inputs. Al-Sayad stressed exchange rate liberalization was expected, given the global changes, and expects the continuity of the dollar’s oscillations in the coming days.
Engineer Matti Bishai, head of the Internal Trade Commission of the General Division of Importers of the General Federation of Chambers of Commerce of Egypt, highlighted the significant impact of the increase in the exchange rate on banking transactions in the country, especially for the food industry. In recent times, Egypt has witnessed a dollar boom and the emergence of a parallel market for currency exchange. He stated most commodities experienced significant increases in the last period due to the exchange rate expectations; therefore, many commercial sectors will not experience significant impacts from this exchange rate oscillation.
Regarding recent decisions by the Central Bank to cancel the requirements for letters of credit for imports of up to USD 500,000 instead of USD 5,000, he stated that it would lead to a significant acceleration in the outflow of goods piled up in ports and, consequently, a spike in the supply of goods lacking in the market in the last period.
Agreement with the IMF
After the Central Bank of Egypt announced it had taken a set of decisions, including floating exchange rates and raising interest rates, the Egyptian government revealed it had reached an agreement to obtain a USD 9 billion loan from the International Monetary Fund (IMF). The funds will be used to finance the Egyptian budget.
The Egyptian Ministry of Finance, through minister Mohamed Maait, announced the implementation of a package of combined protection programs totaling EGP 67 billion a year (about USD 6.03 billion) starting next November. The primary purpose is to provide a social protection package and support to citizens in the face of current global transformations.
Translated by Georgette Merkhan & Elúsio Brasileiro
