The Central Bank of Egypt (CBE) fixed the Egyptian pound’s price against the US dollar once again on Tuesday during its regular auction to sell dollars to banks.
The CBE’s decision came while the market continues to await a devaluation of the Egyptian pound against the US dollar, after CBE governor Tarek Amer returned with the Egyptian delegation from the International Monetary Fund (IMF) and World Bank Group autumn meetings.
The market’s expectations on devaluating or floating the pound have increased in the aftermath of statements by the IMF’s managing director, Christine Lagarde. She stated that the Egyptian government will have to meet its pledges on executing the reforms it agreed upon with the IMF, including decreasing energy subsidies and making the exchange rate more flexible. These steps are conditions for the IMF’s approval of the loan initially agreed upon.
The market has understood from the statements of Lagarde and other officials at the IMF that the CBE will have to float the pound before the end of this month or by the beginning of the next month, in order to meet the IMF’s requirements.
The CBE decided on Tuesday to fix the US dollar price at EGP 8.78 and no exceptional auction was launched as opposed to what was expected.
Through the auction, the CBE granted banks approximately $118.4m; they were directed to cover imports of medication, vaccines, chemical substances, and drug ingredients.
According to vice head of the treasury sector in a foreign bank operating in the local market Mohamed Hussein, the CBE’s decision on fixing the US dollar’s price and not launching an exceptional auction now came in line with his expectations and the expectations of treasury officials in banks. However, this was contrary to what the market expected.
Hussein stressed that there is definitely an upcoming devaluation of the Egyptian pound against the US dollar. However, the time of that devaluation cannot be predicted; otherwise, it would lose the element of surprise—something central banks are inclined to do when it comes to major decisions.
It is unlikely that the CBE will launch an exceptional auction now, as it is keen on maintaining the foreign exchange reserves and increasing them to $25bn by the end of this year, as Amer said earlier, according to Hussein.