Capital Economics expects Egyptian pound to fall 18% to 24/$ by end-2023 if not sooner

CAIRO - 27 October 2022: Capital Economics expected Thursday the Egyptian pound to fall 18 percent to 24/$ by end-2023 if not sooner.

 

This comes after the Central Bank of Egypt (CBE) announced, earlier Thursday,moving to a durably flexible exchange rate regime, leaving the forces of supply and demand to determine the value of the Egyptian pound against other foreign currencies.

 

“The move will result in some short-term economic pain but it will help to get an IMF deal over the line and go a long way to restoring macroeconomic stability,” it stated.

 

It added that the move will add to inflation pressures which are expected to rise further and stay high over 2023, after recording its highest rate in four years during September 2022 at 15% on an annual basis.

 

Capital Economics referred to the CBE’s decision to raise interest rates by 2 percent earlier Thursday which in its point of view comes to encounter the inflation pressure.

 

Despite the concerns related to the fragile public finances resulting from the weaker currency and the interest rate raise, the economics company expects “the government will be able to muddle through, not least because fiscal policy is already tight and is expected to remain so.”

 

 

“Today's move is a welcome step and, with an IMF deal now set to get the green light, will go a long way to restoring macroeconomic stability in Egypt. And if the government can push through structural reforms under the auspices of the IMF, the country’s long-term prospects will brighten,” it commented.

 

The Central Bank of Egypt (CBE) announced, earlier Thursday, the issuance of several decisions related to the exchange rate, interest rates and letters of credit for importing.

 

The decisions which were taken in an exceptional meeting included raising the Central  Bank of Egypt’s (CBE) interest rates by 200 basis points or 2 percent, in an exceptional meeting.

 

The overnight deposit rate, overnight lending rate, and the rate of the main operation were raised  to 13.25 percent, 14.25 percent, and 13.75 percent, respectively.  The discount rate was also kept raised to 13.75 percent.