Cairo – February 11, 2024: Any further devaluation will push the Egyptian pound to LE 45-50 territory, explained financial firm JP Morgan in a recent research note, adding that recent news of fresh foreign currency inflows into Egypt will help stabilize the pound and lower the black market exchange rate.
JP Morgan expects that any currency adjustment will be accompanied by an increase in deposit interest rates by an additional 2 percent.
This follows the recent results of the central bank’s Monetary Policy Committee, which raised key interest rates by 2 percent during its first 2024 meeting, citing ongoing trade disruptions in the Red Sea and an uncertain inflation outlook.
The financial firm also noted that it expects Egypt and the International Monetary Fund (IMF) will finalize a new agreement for its $3 billion loan during the first half of 2024, leading to an adjustment of the LE and tightening of monetary policy.
JP Morgan highlighted that adjusting the foreign exchange rates will be crucial to completing the agreement with the IMF.
The firm believes that Egypt and the IMF could comes to a staff level agreement within the coming weeks, with an approval of the IMF Board of Directors for the first and second reviews to come around March.
JP Morgan suggested that concerns about regional geopolitical stability may have encouraged the IMF to adopt a softer stance in recent weeks, but will stay firm to the basic pillars of the IMF $3 billion loan program.
The research note, citing an IMF statement, highlighted Egypt’s growing financing gap driven by recent external shocks, including a decline in revenues from the Suez Canal due to security concerns. JP Morgan estimated that Egypt has lost around $800 million in the past two months due to the Houthi attacks in the Red Sea.
JP Morgan predicts that the CBE will commit to securing further foreign currency and closing the gap between the official and black market foreign exchange rates prior to establishing a new exchange rate policy.
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