Pound Falls to Lowest Level in 7 Months

Taarek Refaat

The Egyptian pound fell on Thursday to a seven-month low to EGP 16.24 after after two month of unchanged trading rates.

The pound, which compensated for some of its losses later in the trading session, fell 2.2% against the US currency since the beginning of the week, the biggest weekly decline since March 2017.

Moreover, the Executive Board of the International Monetary Fund (IMF) has already approved emergency financing for Egypt less than a month ago, several weeks ago, 2.7 billion, to help Egypt and with the pandemic that was a Rapid Financing Instrument (RFI). Economists expect the International Monetary Fund will look at the very least a moderate devaluation.

Capital Economics Analyst James Swanston said that the deviation of the Egyptian pound is far from the level of 15.7 against the dollar, which has remained in it for most of the past few months, indicating that the Egyptian Central Bank has begun to loosen its grip on the currency.

"But as global risk appetite improves, it is likely that policymakers are feeling more comfortable now in allowing the currency to depreciate, and we expect it to drop further in the coming months," Swanston added.

Ahmed Hafez at Renaissance Capital expects the pound to drop to 17 against the US currency by the end of the year. "The move was not surprising but, that it was a little faster than we had expected," he pointed out.

The corona pandemic has affected some of the largest foreign exchange resources for Egypt in the past three months, especially tourism, which accounts for about 5% of gross domestic product (GDP) and remittances from Egyptians working abroad. It also caused massive foreign currency displacements from domestic debt markets.

The Egyptian currency has declined only slightly since the beginning of the year, and this contrasts sharply with other emerging market currencies that have been affected by the crisis, namley the Brazilian real, which fell by nearly 20% in 2020.

Meantime, the Minister of Planning and Economic Development Hala El-Said said last month that the RFI would help Egypt implement structural reforms that would help remove barriers to private business.