The proceeds of dollar cash flows in the banking system since the decision to float the Egyptian pound in November were estimated at more than $54bn, according to an official source in the Central Bank of Egypt (CBE).
The proceeds are distributed between $25bn in funding packages, $20bn in dollar concessions from the local market and remittances from Egyptians working abroad, in addition to $9bn in total cash flows from investment funds and international and regional financial institutions, according to the source’s statement to MENA.
The source added that banks have achieved net additional liquidity of more than $8bn, in addition to the proceeds from the dollar concessions and the CBE’s reserves, which exceeded $31bn by the end of June for the first time since the 25 January Revolution in 2011. He said that the cash flows have exceed the need for them for the first time in years.
He explained that the improved economic climate in Egypt since the flotation decision has contributed to improving liquidity rates in the banking system, noting that the economic reform policies are starting to pay off quickly, and this is easy to see in the rates of cash reserves and the balance of payments, which achieved a surplus of more than $11bn.
Analysts expect the CBE’s monetary policy committee (MPC) to keep interest rates unchanged in the meeting to be held on Thursday, while one analyst expected an increase by 1% after the increase in fuel prices. This came after the news of a possible trend by the MPC to increase the interest rate in order to deal with the inflationary impacts after increasing fuel prices, which lead to an increase in the prices of the majority of goods and services.
The CBE surprised the market in May when the interest was increased again by 2%, after a 3% increase in November 2016 in conjunction with the liberalisation of the exchange rate.
The CBE justified the recent increase to 16.75% and 17.75% on depositing and loaning respectively, stating that it aims to curb inflation (exceeding 30%) that has ensued after the flotation of the pound, an unprecedented level in three decades.
Inflation slowed down in May, dropping below 30% for the first time since flotation; however, economic experts expect annual inflation to increase again after the government’s decision to increase fuel prices and increase VAT to 14% instead of 13% starting July.
Investment banks expect the increase in fuel prices and taxes to cause a new wave of price increase, which might mean inflation will reach a total of 35%.