By: Heba El-Kordy
Cairo - Mubasher: The Egyptian pound was stable against the US Dollar during 2018, despite a crisis that struck emerging markets around the world.
The majority of market analysts expect the Egyptian currency to slightly decline next year, due to lower foreign investments in debt instruments, amidst rising interest rates and uncertainties globally, as well as decision limiting the control over exchange rates.
The USD/EGP pair maintained the level between of 17.6 (at the beginning of the year) to 17.97 in April, as it nears the end of 2018 at 17.95.
Data of the Central Bank of Egypt (CBE) showed that USD rose by 1% against EGP year-to-date.
Meanwhile, the Egyptian government set the USD exchange rate at EGP 17.25 in the public budget for fiscal year 2018/2019, compared with EGP 16 in FY17/18.
A further decline in the Egyptian Pound would negatively the budget, which has a forecasted 0.05% surplus, by around EGP 3 billion.
Scenarios for EGP in 2019
Hany Farahat of CI Capital said that there two scenarios to the USD/EGP pair in 2019, the first is stability with improved global conditions, while the second is more uncertainty leading to less foreign investments in Egypt, thus leading to more currency depreciation.
Foreign investments in Egyptian treasury bills and bonds fell in October for the seventh consecutive month to EGP 210.2 billion ($11.7 billion), down from EGP 234.5 billion ($13.1 billion) in September.
Capital Economics expects the USD/EGP to reach 19 by the end of next year,
Policymakers are working on simplifying exchange rate, with the Ministry of Finance (MoF) and the Central Bank of Egypt (CBE) on the right track after cutting customs dollar exchange rate and cancelling the transfer of foreign investors’ cash, Capital Economics added, noting that the exchange rate policy is still complicated.
Decisions made by the MOF and the CBE were compliant with expectations that the central bank was pushing state-run lenders to support the Egyptian pound, according to the report.
This policy cannot last for a longer period and the next step might be limiting invisible interference in the exchange market, which will force the EGP to slash, the report pointed out.
Capital Economics projected that the CBE will resume its quantitative easing policy in early 2019 on the back of an expected decline in Egypt’s core inflation rate.
The research firm expects Egypt’s interest rate to decline to 11.25% by the end of 2019.
Emirates NBD Egypt Purchasing Managers’ Index (PMI) data suggest that price pressures in Egypt softened further, supporting the long-held view that inflation and interest rates will ultimately fall by more than most anticipate.
The seasonally adjusted Emirates NBD Egypt PMI grew to 49.2 in November from 48.6 in October.
Egypt’s annual urban consumer price inflation registered 17.5% in October, compared with 31.8% for the same period last year.
The Central Bank of Egypt (CBE) has had to raise rates following the flotation, of the local currency in November 2016, by a combined 7%, 3% in November 2016, 2% in May 2017, and 2% in July 2017.
In February and March, the CBE cut interest rates by 1% each time.
In mid-November, the CBE’s Monetary Policy Committee (MPC) kept the interest rates unchanged. Overnight deposit rate and overnight lending rate maintained at 16.7% and 17.7%, respectively.
Similarly, the International Monetary Fund (IMF) projected Egypt’s inflation rate to decline to 12.9% in 2019.
Inflation rate is also expected to fall to 13.9%.
Moreover, Standard and Poor’s (S&P) forecasts the pair will reach 18.4 by the end of June 2019, 18.9 by 2020, and 19.4 by 2021.
Translated By: Moslem Ali
