This week the national currency lost EGP 1.5-2 against the US dollar, but on Wednesday the Egyptian pound stabilised at the Central Bank of Egypt (CBE) and other banks in the market.
At banks on Wednesday, the US dollar changed hands at EGP 17-17.5 for buying and EGP 17.4-18.25 for selling—the same rate as Tuesday.
The dollar has been gaining ground against the pound since Sunday, which caused alarm in the market.
Mohamed Abdel Aal, a board member of both the Suez Canal Bank and the Arab Sudanese Bank, said that it is not good, nor necessary, for the US dollar price to follow a downtrend so early after the flotation of the national currency.
“It should be moving up and down according to supply and demand,” he added.
Moreover, he predicted that the rate will move around EGP 16 in the coming days. He attributed this expectation to encouraging investment and hedge funds to sell their US dollars and invest in treasury bills and bonds denominated in pounds, in addition to countering the expected demand on the dollar after the CBE allowed banks to finance imports of non-essential goods.
He assured that the variations in exchange rates among banks and its movement is normal.
“The new exchange rate policy needs an appropriate period to pass through the transition phase and ensure the effectiveness of the market,” he explained. “The availability of the greenback and emergence of market-making banks and primary dealers who would cover the demand and set the fair price might take some time.”
Tamer Youssef, head of the treasury at a foreign bank operating in the Egyptian market, said that full flotation makes currency more sensitive to changes that affect demand and the supply, which reflects on the official exchange rate.
He added that this is something new in Egypt, where in recent years the CBE had always set a fixed price, while the unofficial market moved according to market conditions.
He also assured that the rise and fall of the exchange rate is normal until it reaches a real price that both balances supply and demand and achieves the state’s monetary targets, especially price stability.
He pointed out that the state is currently aiming to attract foreign investors to invest in government debt instruments and the Egyptian Exchange (EGX), as a step prior to attracting foreign direct investment. “This will not be realised before establishing an attractive exchange rate and a high return on investment in the national currency,” he explained. “This is why the rate is likely to remain around EGP 16 for about three months.”
He added that this will then be followed by inflow of direct investments, which would raise Egypt’s credit rating and increase its foreign exchange reserves—eventually leading the exchange rate lower to EGP 14.