The dollar rate rose against the Egyptian pound on Wednesday morning, after the central bank raised the interest rate by 6%, i.e. 600 basis points, as a result of which the dollar exchange rate was liberalized against the Egyptian pound by so-called floating.
The dollar has officially risen from almost 31 levels to above 50 LE levels as of this writing, according to the trading screen on the website of the Commercial International Bank, the largest bank listed on the Egyptian Stock Exchange, the dollar price also rose in the parallel market to about 55 LE levels.
The CBE also announced that it will allow the exchange rate to move according to market mechanisms, i.e. according to supply and demand, and assured that unifying the exchange rate is a very important measure, as it contributes to eliminating the accumulation of demand for foreign exchange, as well as closing the gap between the official and parallel market exchange rate.
Moreover, the CBE affirmed its commitment to maintaining price stability in the medium term, as the authorities look forward to alleviating the shortage in the dollar and obtaining a new loan from the International Monetary Fund, in addition to the hard currency that came to Egypt in the Ras al-Hikma deal, which was the reason for the decline of the dollar in the parallel market. From levels of 70 pounds up to about 40 pounds.
The CBE also announced that it will hold a press conference today, Wednesday, March 6, 2024, at exactly six thirty in the evening.
What is the impact of this decision?
- We expect either that the parallel market to be eleminated in the coming period, or it continues with a very slight difference between the official exchange rate of the dollar in banks and its exchange rate in the parallel market.
- We expect an influx of foreign investments that were awaiting the decision to liberalize this exchange rate.
- An increase in remittances from Egyptians abroad through official channels.
- Obtaining an International Monetary Fund (IMF) loan, which was conditioned on the liberalization of the exchange rate.
- Increasing the supply of goods in the markets may be a reason for gradually decreasing prices and reducing inflation, as raising interest by 6% and reaching approximately 30% will encourage individuals to place their money in banks, thus reducing liquidity and then decreasing inflation.
We expect the US dollar exchange rate to rise slightly above the current level and then decline again, if the CBE manages to control it during this period.
