Mohamed El-Etreby, Chairman of the Federation of Egyptian Banks spoke about the price of the dollar against the pound following the decisions of the Monetary Policy Committee of the Central Bank of Egypt in its meeting Thursday to raise the interest rate by 200 basis points, equivalent to 2%.
Will the price of the dollar rise against the pound after the decisions of the Central Bank?
El-Etreby said in a call-in with journalist Mustafa Bakri, on Sada Al-Balad channel, that the Central Bank’s decision was expected after real inflation reached 41%, pointing out that raising interest would counter the high inflation rate.
The head of the Federation of Egyptian Banks added that the central bank's priority is to confront inflation, pointing out that the new decisions to raise the interest rate will lead to lower inflation rates and thus lower prices.
He indicated that raising the interest rate will not affect the dollar’s rise against the Egyptian pound, because it reduces the process of trading foreign currency outside the banking sector, pointing to those who have foreign currency resources but do not enter the official channels due to the existence of a parallel market.
He stated that the decisions to raise the interest rate come to confront the black market, and to ensure the entry of foreign currencies into the official banking sector.
Meantime, the futures contracts for the Egyptian pound against the dollar fell to EGP 40.25 a week earlier.
The rise in the value of futures contracts indicates a further depreciation of the Egyptian pound over the next few days.
Some analysts expect a further devaluation to the Egyptian currency to the level of EGP 34-35 against the dollar, however, rate hikes by the central bank, if combined with the injection of foreign currency to market investors, can contain devaluation.
The Egyptian Pound is expected to trade at EGP 31.89 by the end of this quarter, according to Trading Economics global macro models and analysts expectations. Looking forward, Trading Economics estimated the pound to trade at EGP 35.24 in 12 months time, however, Chairman of the Federation of Egyptian Banks said that raising rates has the opposite effect on the exchange rate.
Other analysts said that the sudden rise to the dollar to EGP 32 on January 11, after it returned to level of EGP 30 pounds in the same transactions, due to $925 million worth of interbank foreign investments, could be a reasonable devaluation to the pound in the current period.
Unfortunately, some investors are paying multinational banks and rating agencies to spread the word about the need to devalue certain currencies to serve their own interests.
Egypt has tourism revenues and the Suez Canal, in addition to agricultural exports and LNG, If managed in the right way, it can survive the current global economic crises.
Analysts said that Egypt's success in attracting $1.5 billion in dollar proceeds from the sale of the first sovereign sukuk on the London Stock Exchange in February will not be reflected in the strength of the pound and its trend to rise against the dollar, but the completion of this step will have a good indirect impact.
Over the course of almost a year, the price of the pound witnessed a significant decline against foreign currencies, so that the dollar rose by about 94% against it, bringing the average selling price from EGP 15.76 to EGP 30.95, as a large part of this rise came after the Central Bank announced its emphasis on adopting a flexible exchange rate policy for the pound, and the shortage of foreign reserves.
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