Cairo - Mubasher: Egyptian commercial banks has returned to pre-2012 foreign exchange position limits, which reflects a lower risk as the liquidity improves, according to a recent report by Pharos Research.
The Central Bank of Egypt (CBE) governor, Tarek Amer vowed to remove the rest of foreign exchange restrictions by the end of 2017.
This was supported by an improved balance of payments dynamics, in addition to stabilizing local sentiment after the hype that had followed the exchange rate liberation, the report added.
The current account deficit narrowed from $4.7 billion in the second quarter of fiscal year 2016-2017 to $2.4 billion in Q4-FY16/17 on a lower trade deficit, higher tourism revenue and remittances.
This was reflected on commercial banks’ daily EGP/USD bid-ask spread volatility, which eased significantly from around 5% in November 2016 to 0.5% in November 2017, the research firm indicated.
The growth rate of the foreign holdings of EGP-denominated treasuries has declined significantly in the recent months on stable exchange rate, in addition to the interest rate cycle reverse expectations.
The aforementioned balance of payments dynamics led the exchange rate to appreciate from EGP 18.2 per USD in March 2017 to EGP 17.6 per USD in November 2017.
Moreover, the current tight monetary stance is expected to ease off going forward as the inflation rate decelerates.
“Accordingly, channeling foreign treasury inflows to commercial banks would have a limited impact on the exchange rate as the momentum has already faded away,” the report explained.
Pharos notes that foreign currency demand usually picks up by the end of the year as companies build up inventory and foreign shareholders repatriate profit, this should also help neutralize the impact of any excess foreign currency supply from foreign treasury investment inflows.
