Cairo - Mubasher: Pharos Research expects the Central Bank of Egypt (CBE) to devaluate the Egyptian pound against the dollar to the level of EGP 11 to 12 per US dollar during November.
The Three month non-deliverable forwards (NDFs) reflect a less-speculative picture of the real market value of the EGP/USD exchange rate, according to Pharos.
The 3-month NDF rate averaged EGP 8.80 per USD in February 2016, just before the exchange rate went officially to EGP 8.88 versus the USD in March 2016. The 3-month NDFs exchange rate averaged EGP 11.00 per USD in September 2016 and EGP 12.05 per USD as of October 24, the report highlighted.
Pharos believes that the CBE’s strategy will include a sharp and frequent, albeit less-than-expected, exchange rate movements by floating or devaluating the pound, in addition to more-than-expected and frequent foreign currency injections.
The report also noted that a full EGP float is preferred from a macroeconomic perspective, but a managed float looks to be more politically appropriate.
Previously communicated dates by government officials show that devaluation should be penciled in for November
The research firm also estimate that the CBE will raise the interest rates on 17 November by around 200 basis points to raise the attractiveness of the EGP as an investment vehicle and attract fixed income portfolio inflows from international investors.
“These dates tell us that a devaluation in November is, now, very probable,” the report indicated.
“We reiterate that Egypt’s external sector outlook remains ‘negative,” meaning that the EGP will continue to weaken in FY2016/17, hence, "flexibility" on exchange rate movements will continue be required,” the report concluded.
