By Ayat Al-Battawy
The political chaos in Egypt that followed the Constitutional Court’s decision to dissolve parliament is being directly reflected in the local exchange market. The pound lost one piaster relative to the dollar as soon as the dissolution of parliament was announced. It approached its highest rate since the revolution and the record set last January. The price of the dollar in the local exchange market reached EGP 6.0466, compared to EGP 6.0309 last Wednesday, before the announcement of the constitutional court’s decisions by hours. The pound benefited from the weekend and the election holiday to recover before pressure renewed beginning from today.
A Reuters report released Thursday read “the renewal of political disturbances makes it difficult for the Central Bank to continue protecting the local currency.” The pound has lost 30 piasters on the dollar since the revolution in the beginning of last year. Last week, the global rating agency Fitch downgraded Egypt’s credit rating by one level to B-plus from BB-minus with a negative outlook.
Amr Hassanein, president of Meris Middle East Rating and Investors Service, expected that other companies will downgrade Egypt’s credit rating in the future if the political chaos continues. Mohammad Moharram, the Director of the Chamber of International Transactions with the Egyptian Gulf Bank, said that the pressures on the pound will be strong in the coming period, but that he expected the Central Bank to continue its current policy to support the price of the local currency. The Central Bank designed its monetary policy to target inflation and to stabilize prices. It worked to keep the value of the pound stable in order to achieve this goal.
In the last 16 months, Egypt’s foreign currency reserves fell from $20bn to $15.5bn last month. Egypt’s credit rating has been downgraded several times because of this drop. The pound lost ten piasters relative to the Euro and the pound sterling at once yesterday. The price of the Euro was EGP 7.65 while the pound sterling was recorded at EGP 9.5 despite the problems facing those two currencies globally. The Central Bank is required to fulfill its international obligations with a value of $1.7bn within this month and next month, which could result in the lowest foreign reserves in nine years.