Two years since cur­rency floata­tion

FOR­EIGN EX­CHANGE RE­SERVES UP BY $25BN, HARD CASH FLOW IN­CREASED, IN­FLA­TION DE­CLINED, EX­TER­NAL DEBT $92.6BN

The Daily News Egypt - - News - By Hos­sam Mounir

The Egyp­tian mar­ket has wit­nessed many im­por­tant de­vel­op­ments over the last two years since the Cen­tral Bank of Egypt (CBE) has de­cided to lib­er­alise the lo­cal cur­rency on 3 Novem­ber 2016, no­tably the rise of for­eign ex­change re­serves by $25bn and the de­cline of in­fla­tion.

For­eign ex­change re­serves

The de­ci­sion to lib­er­alise the lo­cal ex­change rate con­trib­uted to in­creas­ing for­eign ex­change re­serves up to $44.4bn at the end of Septem­ber 2018, com­pared to $19.5bn in Oc­to­ber 2016, mark­ing an in­crease of about $25bn.

This in­crease was par­tially driven by a rise in hard cash flow and ex­ter­nal loans.The in­crease of re­mit­tances from Egyp­tian ex­pa­tri­ates from $17bn be­fore the CBE’s de­ci­sion to $26.5bn in the fis­cal year (FY) 2017/18 also had an ef­fect.

The re­mit­tances are among the most im­por­tant sources of for­eign cur­rency in Egypt, which be­came even more im­por­tant fol­low­ing the flota­tion, along with the Suez Canal and rev­enues from the tourism in­dus­try.

For­eign ex­change re­sources

Ac­cord­ing to the CBE’s gover­nor, Tarek Amer, Egypt’s hard cash flow reg­is­tered $150bn since the de­ci­sion to float Egyp­tian pound un­til Au­gust 2018.

Amer pointed out that these funds con­trib­uted to fi­nanc­ing na­tional megapro­jects which led to a sig­nif­i­cant in­crease in eco­nomic growth rates.

Dol­lar

Fol­low­ing the CBE’s de­ci­sion, the for­eign ex­change rate in­creased by 48% reach­ing EGP 13.5 against the dol­lar in the wake of the flota­tion.The in­ter­est rate con­tin­ued ris­ing to EGP 18.6 at the end of Novem­ber 2016, then to EGP 19.52 at the end of December 2016, mark­ing the high­est rate of the dol­lar to the Egyp­tian pound.

Dur­ing the last few months, the dol­lar re­mained al­most sta­ble at EGP 17.5-18.5 with mi­nor volatil­ity.

In­fla­tion

The CBE was pre­pared to curb any in­fla­tion hikes fol­low­ing its de­ci­sion, re­ly­ing on its mon­e­tary pol­icy tools which man­aged to keep its rate at 8.6% at the end of Septem­ber, down from 34.2% in July 2017 and 14.6% in Septem­ber 2016.

In­ter­est rates

To curb in­fla­tion, the CBE re­sorted to rais­ing in­ter­est rates by 5%. The CBE in­creased in­ter­est rates on overnight de­posits and lend­ing by 300 ba­sis points, to reach 14.75% and 15.75% re­spec­tively.

When in­fla­tion hit a record jump of 34.2% in July 2017, the CBE again in­creased in­ter­est rates by 200 ba­sis points to reach 18.75% for overnight de­posits and 19.97% for lend­ing to ease the in­fla­tion­ary pres­sure caused by en­ergy price hikes.

After the pol­icy of rais­ing in­ter­est rates gave pos­i­tive re­sults re­gard­ing in­fla­tion, the CBE cut in­ter­est rates by 1% to 17.75% for de­posits and 18.75% for lend­ing. In March, the CBE cut in­ter­est rates by an­other 1% to record 16.75% and 17.75% re­spec­tively.The rates have been un­changed since.

Prior to the flota­tion, in­ter­est rates were at 11.75% for de­posits and 12.75% for lend­ing.

Pub­lic debt

The size of the ex­ter­nal debt amounted to $92.6bn at the end of June 2018, up from $67.3bn be­fore the flota­tion. In­ter­nal debt recorded EGP 3.7tn at the end of June, up from EGP 2.5tn be­fore the de­ci­sion.

Growth rate

The eco­nomic growth rate reached 5.3-5.4% dur­ing the last two quar­ters of FY 2017/18, up from 4% be­fore the flota­tion.

The CBE was pre­pared to curb any in­fla­tion hikes fol­low­ing its de­ci­sion, and re­ly­ing on its mon­e­tary pol­icy

The CBE’s Gover­nor Tarek Amer

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