Investors rush for Egypt’s pound

Investors are bidding up Egypt’s currency even with the wait for the central bank to resume interest-rate cuts unlikely to end for months.

Plans to lift fuel subsidies this year are certain to push up inflation, which already gained in January after ending last year within the central bank’s target range. Bloomberg Economics estimates that the complete removal of fuel subsidies would increase inflation by as much as 2 percentage points.

But traders are betting rate cuts are only a matter of time. The Monetary Policy Committee last reduced borrowing costs in March as inflation eased from record highs.

As easing creeps closer, the pound traded at its strongest since March 2017. The pound added 0.3 per cent to 17.5419 versus the dollar as of 1:11pm in Cairo, bringing its gains to almost 2 per cent for the year.

The appreciation was likely linked to investors wanting to “lock in higher interest rate yields ahead of what could be a rate cut on the horizon and increased foreign-currency inflows amid a plateaued demand” for hard currency needed for imports, said Reham Al Desoki, an independent economist based in Cairo.

The currency is in the spotlight after Egypt last year ended a repatriation mechanism that ensured foreign investors could get their dollar earnings out of the country. Though it reflects growing investor confidence in Egypt, the shift toward the open market is also likely to expose the pound to more volatility.

While the central bank said it stands ready to fend off speculators and ensure debt holders don’t lose out, the Finance Ministry just cut its forecast for the pound’s value against the dollar in its midyear report.