Fitch Expects Egyptian Pound to Stabilize in 2021

A report issued by Fitch credit rating agency revealed that the value of the Egyptian pound is expected to stabilize in the short run despite the surge in foreign exchange inflows, including the increase in remittances of workers abroad, the relative recovery in the tourism sector, and access to IMF financing.

The exchange rate of the Egyptian pound is expected to range between EGP 15.50 - 15.80 against the US dollar until the end of the year.

However, the value of the Egyptian pound is expected to gradually decline in the long term to record EGP 16.10 against the greenback on average during 2022 as a result of the expected rise in the inflation rate to 6.6% on average during 2022 versus 5.10% on average during 2021.

The expected inflation, according to the report, will largely occur due to the increase in domestic demand and the increase in electricity prices in light of the reduction of subsidies.

Fitch also expected that cash flows to Egypt will rise in the short term due to the rise in real interest rates, which will put pressure on the Egyptian pound.

Egypt still enjoys the highest real interest rate in the world, which, along with favorable macroeconomic conditions, will maintain the attractiveness of Egyptian debt instruments to foreign investors.

The central bank held the benchmark deposit rate at 8.25% and the lending rate at 9.25% in its latest meeting.

Real interest rates are expected to rise over the next year as Fitch expects the Central Bank of Egypt (CBE) to keep its monetary policy on hold throughout 2022, while inflation remains within the target range of 7.0% (±2.0 percentage points).

The report concluded that remittances from Egyptian abroad, as well as the gradual recovery in tourism inflows, and access to IMF financing will provide support for the Egyptian currency; where remittances is expected to rise during the years 2021-2022, supported by the economic recovery in the Gulf region.

Fitch also expects a gradual recovery in the tourism sector due to the progress in mass vaccination campaigns in Europe, as well as the resumption of flights with Russia, which will bring billions of dollars worth of revenues to the country.