The dollar broke the EGP 8 barrier in banks and exchange companies operating in the Egyptian market for the first time, while the price rose to EGP 8.40 in the black market.
The Central Bank of Egypt (CBE) reduced the value of the Egyptian pound by 10 piasters, following the reduction last Thursday with the same value.
In the tender held by the CBE, Sunday, the price of the dollar reached EGP 7.9301, EGP 8.03 for sale at banks and exchange companies, and EGP 7.98 for buying.
The dollar’s price jumped to EGP 8.40 in the black market, said an official working in an exchange company.
According to sources, dollar sales to banks and exchange companies have relatively stopped since last Thursday. Traders have preferred to wait in anticipation of the CEB’s next step, and whether there will be a new reduction in the value of the Egyptian pound against the dollar.
The CBE determines the price of the dollar against the pound for all banks in Egypt, through the tender that it holds to sell dollars to banks operating in the Egyptian market on Sundays, Tuesdays, and Thursdays of each week.
Analysts said the dollar’s price will likely increase to EGP 8.25 against the Egyptian pound in three months, and will rise again to EGP 8.5 by the end of the first half of 2016.
The CBE raised the price of the dollar against the Egyptian pound for the first time on 18 January 2015, increasing it by EGP 0.05.
Last July, the CBE introduced another devaluation of the pound against the dollar, by EGP 0.20 twice.
The CBE is deliberately reducing the value of the Egyptian pound to meet the terms of the International Monetary Fund (IMF), which said the Egyptian pound is overvalued against the US dollar, according to a prominent banker, who preferred to remain anonymous.
The exchange rate policy pursued by the CBE has been a point of dispute with the IMF, which has continuously called for the full liberalisation of the exchange rate in Egypt, the source added.
The Egyptian government may wish to reach an agreement with the IMF for a loan, or to obtain an accreditation certificate for the Egyptian economy, the source noted. Thus, the government had no choice but to implement the conditions related to the exchange rate and allow the value of the pound to reach the level that the IMF deems acceptable, he said.
“The rises witnessed in dollar exchange rates against the pound reflect the CBE’s clear vision of adopting a flexible exchange rate policy, consistent with the requirements of monetary and fiscal policies and current economic conditions,” said Mohamed Abdel Aal, board member of the Arab Sudanese Bank and the Suez Canal Bank.
Abdel Aal believes the rise of the dollar price by the CBE may be followed by further increases, until it achieves the required balance.
He added that this move by the CBE could face criticism, arguing that the devaluation will increase inflationary pressures, and lead to a continuing rise in commodity and production input prices.
According to Abdel Aal, the increase in dollar prices should not immediately increases commodity prices, because it is known that most of importers priced their goods earlier, based on EGP 8.25 to the dollar, to cover the currency risk.
He added that the careful increase of the dollar exchange rate will inevitably lead to a reduction in imports, especially luxury goods. This will improve the competitiveness of domestic goods; promote tourism, and increase remittances and foreign direct investment.