A number of bank leaders operating in the Egyptian market said that the decision to float the Egyptian pound, taken by the Central Bank of Egypt (CBE) on Thursday, is a historic decision.
They told Daily News Egypt and other media outlets that raising interest rates by 3% was necessary to preserve the value of citizens’ savings in banks and to face the expected rise in inflation.
Chairperson of the National Bank of Egypt (NBE), Hisham Okasha, said that the decision to liberalise the local currency exchange rate was very important and expected, as it eliminated the unofficial market.
Okasha said that the decision to raise interest rates by 3% and to issue savings certificates from government-owned banks with a yield of 20% aims to keep citizens’ savings in Egyptian pounds, and to encourage citizens to deposit and invest their money in new saving instruments.
These decisions will strengthen the investors’ confidence in the market, leading to a flat rate for the currency. It would not result in higher commodity prices, Okasha added, explaining that recently commodities had been priced according to the price of the US dollar in the unofficial market.
Hisham Ezz Al-Arab, chairperson of the Federation of Egyptian Banks and of the Commercial International Bank (CIB), described the decision to float the pound as historical.
Ezz Al-Arab said that the price of the currency in Egypt was considered a national goal, but worldwide, the price of the currency is considered a national means for economic development.
The liberalisation of the exchange rate gives investors flexibility in the Egyptian market, and it contributes to supporting the export sector, as no management decisions control the economy now, according to Ezz Al-Arab.
He confirmed that banks currently control the market, and that it had become the CBE’s role to monitor banks and the market, pointing out that this promotes more production and limits consumption.
Mohamed El-Etreby, chairperson of Banque Misr, also described the decision to float the pound as a historic one. He said that this decision will eliminate the unofficial market and will work on trading foreign exchange within the normal channels.
The liberalisation of the exchange rate should provide overseas investment flow after eliminating the multiple exchange rates in the Egyptian market. All transfers and transactions in the foreign exchange market will be through banks and official exchanges only, which will allow them to meet customer demands of foreign exchange, according to El-Etreby.
He confirmed that raising interest rates is an appropriate step at this stage to reduce the high rates of inflation.
These bold steps will have some impact on the economic situation; however, they had to be implemented until the economy recovers. Egypt’s economy is diverse and will see a boom in the coming years, El-Etreby said.
Chairperson and CEO of Banque du Caire, Mounir El-Zahid, said that the presence of a flat rate of foreign exchange trading is one of the most important factors that reflects the credibility of the Egyptian foreign exchange system. This will positively impact the flow of foreign investments to Egypt during the coming period.
El-Zahid added that the CBE’s decisions reflect its efficient mechanisms in dealing with a more flexible working procedure that takes the demands and supplies of the market into account at the fair value of the common price.
The bank issued new savings certificates with a yield of 20% for a year and a half and 16% for three years. This is a typical method to address any effects of inflation during the period of structural reforms carried out in Egypt through the absorption of savings and excess liquidity with attractive saving instruments to maintain the purchasing power of the pound, according to El-Zahid.
He explained that Egypt went through similar circumstances in 1990 when interest rates rose to 20% for an interim period. These applications are followed in several countries with both emerging and developing economies to cope with the inflationary effects and structural processes for specific periods of time.
El-Zahid added that the CBE’s decisions come to confirm their confidence in the Egyptian economy and to achieve monetary stability. He stressed that Banque du Caire continues to implement all state policies and directions of the CBE that aim at advancing development and the advancement of the national economy, besides correcting the incorrect concepts and practices that the market witnessed over the past period.
According to Elsayed Elkosayer, chairperson of the Principal Bank for Development and Agricultural Credit (PDBAC), floating the Egyptian pound will increase foreign exchange in the banking sector and will increase foreign exchange reserves. It will also encourage foreign investment, tourism, and exports, increase the returns of the Suez Canal, and achieve real economic development.
Elkosayer called on the government to take measures to protect citizens with low income so that they do not get affected by the price increases resulting from the flotation.
Citizens should also understand that this decision is intended to benefit the nation and that they have a major role in conducting all their transactions through banks. Business owners also have a role to rationalise imports and run factories, according to Elkosayer.