CAIRO - March 6, 2024: The liberalization of the exchange rate, as outlined in the Central Bank's statement, implies the unification of the exchange rate, according to economic expert Belal Shoaib.
He highlighted that the market's demand and supply mechanisms would directly establish balance, emphasizing the Central Bank's intervention in interest rates for economic purposes, specifically liquidity withdrawal. This intervention prevents currency traders from manipulating the dollar's price again. Monetary tightening is considered a crucial economic measure to bring about a form of equilibrium in the exchange rate.
During a phone interview with a TV channel, the economic expert added that inflation poses the most prominent challenge to the Egyptian economy, with dollarization linked to inflation. Some engage in the "dollarization" phenomenon, converting the Egyptian pound into dollars. Some even price cars and food in dollars, evaluate them in dollars, and sell them in Egyptian pounds, leading to a significant increase in commodity prices.
He pointed out that attracting more foreign investment and providing dollar liquidity enabled the Central Bank of Egypt (CBE) to raise interest rates, resulting in further monetary tightening and liquidity absorption. He revealed that there is circulating cash outside the banking system estimated at LE 1 trillion.
He confirmed the existence of savings vessels within the two largest government banks, but these banks have not been able to withdraw a significant portion of the liquidity. It is necessary to tighten the cash flow and raise interest rates to enable banks to lend to both companies and individuals.
"We might witness the issuance of high-interest savings certificates to absorb liquidity, especially as Treasury bills had a 30 percent return. The liquidity position in government banks is strong. Investment banks will be the ones to issue certificates, and we may see more high-yield savings vessels in the market," he added.
Earlier on Wednesday, the CBE raised the overnight deposit rate, the overnight lending rate, and the rate of the main operation by 600 basis points to reach 27.25 percent, 28.25 percent, and 27.75 percent, respectively. Additionally, the discount rate has been raised by 600 basis points to 27.75 percent.
The CBE decided to allow the exchange rate to be determined according to market mechanisms. "Unifying the exchange rate is a crucial step to contribute to eliminating the accumulation of demand for foreign currency, following the closure of the gap between the official market exchange rate and the parallel rate," the CBE stated. It added that in preparation for implementing the reform program measures, the necessary funding has been provided to support foreign currency liquidity.
On March 1, Egypt received $5 billion as the final installment of the first tranche of the Ras El Hekma deal with the United Arab Emirates, as announced by the Egyptian Cabinet in a statement. Prime Minister Mostafa Madbouly confirmed a day before that Egypt had received $5 billion as part of the initial installment of the investment partnership agreement with the United Arab Emirates aimed at developing Ras El Hikma. This development serves as a significant boost to Egypt's economic reforms and underscores the appeal of the country's investment environment. Madbouly also disclosed plans to convert $5 billion from the United Arab Emirates (UAE) deposit into Egyptian pounds (EGP).
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