Will Egypt reduce its currency?
The report noted that state-owned banks will no longer be able to support the Egyptian pound with policymakers appearing to hear calls of the International Monetary Fund (IMF) to change the exchange rate regime.
The report also expected the Central Bank of Egypt (CBE) to keep interest rates unchanged in December’s meeting, inflation to decline, and the easing cycle to be resumed in 2019.
Capital Economics expected Egypt to reduce its currency to hit $19 per LE 1 by the end of next year, compared to the current rate of $17.9/LE 1.
The report clarified that the Egyptian policymakers are trying to simply change the country’s exchange rate setup, noting that “it is ultimately likely to result in a weaker pound.”
According to Capital Economics report, the state-owned banks intervened during the past six months to support the currency, expecting that this action cannot be sustained for much longer.
“Policymakers appear to be heeding calls from the IMF to streamline the exchange rate regime by scrapping an investor repatriation scheme and ending a preferential exchange rate for 'non-essential' imports,” it stated.
It referred to the CBE’s decision to end its investor repatriation program, noting that it will deepen liquidity on the interbank FX market, and promote greater swings in the exchange rate.
The report also pointed out raising the custom dollar for non-essential goods to LE 17.8 instead of LE 16.
CAIRO- 2 December 2018: Minister of Finance Mohamed Ma'it said that the changes of the exchange rate and other economic factors affected some aspects of the Egyptian economy negatively, so the Ministry had to take actions to protect the employment and job opportunities.
Finance Minister Mohamed Ma’it announced earlier that Egypt didn’t ask for an additional fund from the IMF.
In November 2016, the Executive Board of the IMF approved a $12 billion loan as a financial assistance for Egypt to support the Egyptian economic reform program.
Upon the board's approval in November, Egypt floated its currency, losing around 50 percent of its value as part of the economic reform program which imposed taxes, including the value-added tax (VAT), and cut energy subsidies, all with the aim of trimming the budget deficit.
CAIRO - 3 December 2018: Minister of Finance Mohamed Ma'it announced that Egypt will receive the fifth tranche of the International Monetary Fund's (IMF) loan in December and expected an international issuance of bonds during the first quarter of 2019. Ma'it clarified that the issuance might be in dollar, euro or any other currency, if possible.
The report also reviewed the Egyptian economic indicators during the third quarter of 2018, describing it by “economy appears to have lost momentum in Q3.”
CAIRO - 16 December 2018: The Egyptian economy witnessed progress in several indicators during 2017 and 2018 after applying the economic reforms since mid-2016. The most significant successes were declining the inflation and unemployment rates and boosting foreign reserves.
The report said that industrial production rose slowly 2.6 percent on a year-on-year basis and that headline inflation declined to 15.7 percent (YOY) in November, from 17.7 percent (YoY) in October, attributing the fall of inflation to the ease of food inflation.
“But core price pressures are weak,” it read.
As per the interest rates, the report expected the Central Bank of Egypt (CBE) to keep the rates unchanged in December’s meeting.
The Central Bank of Egypt’s Monetary Policy Committee kept interest rates unchanged for the fifth time this year during November meeting, setting the overnight deposit rate and the overnight lending rate at 16.75 percent and 17.75 percent, respectively.
CAIRO - 15 November 2018: The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) kept interest rates on hold on Thursday, Nov. 15 for the fifth time this year, meeting the expectations of experts and investment banks. MPC set the overnight deposit rate and the overnight lending rate at 16.75 percent and 17.75 percent, respectively.
Capital Economics anticipated headline inflation to fall further, and that the easing cycle is likely to be resumed in early 2019.
CAIRO - 10 December 2018: Egypt's annual consumer price inflation slipped to 15.6 percent in November 2018, compared to 26.7 percent in the same month of 2017 that rose due to the flotation of the Egyptian currency, state-statistics body said Wednesday, Oct. 10.