As has become a trend in the five years following the 25 January Revolution, the US dollar increased in value over the Egyptian pound with a 9% increase.
The dollar’s value against the pound began 2015 at a rate of $1/EGP 7.18 and rose to a rate of $1/EGP 7.83 by year’s end.
The dollar appreciated to EGP 8 for the first time in the history of the Egyptian market.
The Central Bank of Egypt (CBE) made six important interventions related to the pound’s price against the dollar. Five of these six interventions were made by former CBE governor Hisham Ramez, decreasing the pound 45 piasters (EGP 0.45) over the course of 2015. The value of the pound relative to the US dollar was decreased by 5 piasters at the beginning of the year and another 40 piasters cumulatively in July and October, leaving the final value of the US dollar against the Egyptian pound at a rate of $1/EGP 7.93 on the official market.
The sixth decision was made by the CBE’s new Governor Tarek Amer, in contrary to Ramez’s decisions. In November, he raised the pound’s price against the dollar 20 piasters at once, making the rate exchange $1/EGP 7.73 in the official market, days before officially taking office.
The CBE’s interventions in the exchange market, whether by raising or lowering the pound’s value, did not deny the fact that the dollar was not available in banks to cover the customer needs, which allowed the parallel market to continue operating throughout 2015.
In the parallel market, the dollar’s value increased from the level of EGP 7.75 in January to approxiately EGP 8.75 days before the end of the year. Some reports list the value of the dollar at a high of EGP 9 in this market.
According to Head of the Treasury Unit at NBG Bank Tamer Youssef, it is possible that the pound’s value will continue to decrease against the value of the dollar in 2016, perhaps by the same percentage it decreased by in 2015, 9%.
He said that the CBE is following the international standard policy managed float in dealing with the pound’s exchange rate against the dollar and is expected to continue operating in accord with this policy in 2016 as well, which means that other decreases may occur in the pound’s value against dollar.
If Egypt sees an increase in new dollar liquidity in 2016, the CBE may not use it in defending the value of the pound but will use it to support the foreign exchange reserve.
“CBE may leave the dollar’s price at high levels on purpose, aiming at to not cut prices of imported products, to diminish its demand, and limit import operations”, Youssef said.
Besides the direct decisions the CBE made to fix the dollar’s value at a specific price, it made a number of decisions and procedures to reduce demand on the dollar in both the official and parallel markets. It also urged the banks to increase their dollar resources.
The first of the decisions was made by Ramez, instituting a maximum level for the cash deposits in US dollars in banks at $10,000 daily and $50,000 monthly, whether by individuals or companies. The manufacturers and importers strongly attacked this decision but the CBE asserted that it intends to continue working by it, at least in the upcoming period.
The CBE also injected large amounts of dollar liquidity in banks to cover the import demands, limiting the use of this liquidity to the basic commodities at the beginning of the year. Later, the CBE allowed banks to use part of their resources to cover importing unessential commodities.
In another step to reduce the demand on dollar, the CBE covered 50% of temporary credit facilities the banks granted to their customers working in the field of imports, which they failed to pay back because of the dollar’s crisis.
The CBE instituted new controls to grant banks operating in the local market US dollars through the FX Auctions it puts up every Tuesday and Thursday, and demanded banks to work on increasing their foreign exchange resources.
Before the end of 2015, the CBE issued new controls to regulate import operations, aiming to also reduce the demand on the dollar.
The financial community awaits further decisions from the CBE regarding the exchange market and the value of the Egyptian pound in relation the US dollar that the bank is widely speculated to make in the coming year.