IMF: Egyptian pound at genuine equilibrium

North African nation’s currency may recover after the initial period of post-float trading, fund official says

Egypt has created a “wellfunctioning” currency market that is reflected in the pound’s current rate, the International Monetary Fund (IMF) said, adding that the currency may strengthen after a period of “overshooting” since last year’s float.

The pound is trading at a “genuine equilibrium exchange rate, in the sense that as many people want to sell foreign exchange as buy foreign exchange,” said Chris Jarvis, the IMF’s mission chief to Egypt, after the fund released details of the $12 billion (Dh44 billion) loan approved last year — its largest in the region.

While the pound is weaker than the fund predicted, it may recover after the initial period of post-float trading, Jarvis said. “That’s our current expectation,” he said.

Egypt floated its currency in November to qualify for the IMF loan, which officials say will help raise funds and restore investor confidence.

The pound lost about half its value, with prices soaring at the fastest pace in almost 12 years in December — pushed higher by a rise in fuel prices and a new value-added tax.

With many Egyptians struggling, President Abdul Fattah Al Sissi told state media on Monday that the pound should strengthen and reach fair value in six months. The pound strengthened 0.9 per cent to 18.65 per dollar in Cairo, according to data compiled by Bloomberg. Egypt’s benchmark stock index fell 3.5 per cent.

The IMF expects inflation to drop in the second half of the year. When that starts to happen, interest rates will “come down to permit credit recovery,” the IMF staff said in the report presented to the lender’s board before it approved the loan.

The documents released on Wednesday, which include the Egyptian government’s letter of intent, reveal the main features of the country’s fiscal and monetary policy for the threeyear term of the loan.