Cairo – Mubasher: The devaluation of the Egyptian pound on Monday came as “no surprise”, as the central bank shifts to more flexible exchange rate regime, MubasherTrade Research (MTR) reported.
Yesterday, the Central Bank of Egypt devaluated the Egyptian pound to 8.90 for buying and 8.95 for selling per dollar.
This action will improve the country’s balance of payment, assuring “rebuilding the economy’s fundamentals are more of the Cabinet’s responsibility than the CBE’s”, the research firm said.
However, this monetary policy requires the government to work on two tracks at the same time: on alleviating inflationary pressure and on supporting the local currency, which may lead to a hike in rates.
The present real challenge is “handling Egypt’s twin deficits”, the research firm said, adding “the current account deficit is projected to rise to 4.5% of GDP in 2016 compared with an estimated 3.7% in 2015, adding more pressure on the country’s foreign currency (FCY) resources”.
Accordingly, MTR recommends squeezing the budget in terms of high interest payments, crowding out and raising inflationary pressure due to high levels of money creation.
MTR also expects a 50-100bps rate hike by the time the Monetary Policy Committee (MPC) concludes its meeting this Thursday.
