The Central Bank of Egypt (CBE) lowered the value of the local currency by EGP 1.12 against the US dollar on Monday, in the first official devaluation since Tarek Amer was appointed governor of the CBE.
The official selling price for the dollar at banks has been set at EGP 8.95 following an exceptional auction on Monday.
The Central Bank of Egypt (CBE) issued a statement Monday morning delineating the reasons behind its decision, stating that the decisions are intended to provide the required climate for economic development, job creation, attracting foreign investment, and bolstering confidence in the banking system.
Meanwhile, the decision has raised concerns in the market with regards to its effect on inflation and the budget deficit. President of the Association of Citizens Against Price Rises Mahmoud Al-Askalani expected that the pound’s devaluation will affect the price of items citizens buy and increase the rate of inflation.
Moreover, exporters and importers are in discord over the ramifications of the decision, with importers mostly registering their objections, while exporters lauded the decision.
Head of the imports division at the Federation of Egyptian Chamber of Commerce (FEDCOC) Ahmed Shiha claimed the increase in the value of the dollar against the Egyptian pound is considered an attempt to halt imports, which will negatively affect industry, commerce and agriculture.
Furthermore, parliamentary sources told Daily News Egypt that, following the CBE decision, the parliament will return the draft budget for fiscal year 2016/2017 to the cabinet for amendment, as the budget deficit is expected to register 11.5%, up from 10.5% targeted in the draft budget.
Additionally, Mohamed Al-Abyad, the head of the general division of exchange companies in the Federation of Egyptian Chambers of Commerce, told Daily News Egypt that the informal market was hard-hit by the decision, with the price for the dollar falling below EGP 9.
According to employees at exchange offices, the average dollar exchange rate in the informal market on Monday was EGP 8.95 compared to EGP 9.20 on Saturday and Sunday.
The main index of the Egyptian Exchange, EGX-30, jumped up by 6.7% during Monday trading, registering the largest single-day increase since July 2013. Trading reached approximately EGP 1.43bn, the highest trading volume recorded since March 2014.
The decision to devalue the value of the Egyptian pound against the US dollar is a very positive step for the benefit of the stock exchange, Hany Genena, the head of equities at Beltone Financial, said. This decision is considered a clear step forward towards floating the exchange rate, he added.
Foreign investors have welcomed the CBE’s decision; they considered EGP 8.85 for $1 very close to the fair value of the pound against foreign currencies, Genena said.The devaluation of the pound came after CBE Governor Tarek Amer met in London with representatives of foreign investment funds last week, Genena said.
Managing Director of Mubasher for Securities Ehab Rashad said the CBE’s decision is a positive step in favour of the EGX.
Further, foreign currencies registered a collective rise, with the euro appreciating by EGP 1.21, closing at EGP 9.92 for purchase and EGP 9.95 for sale. The sterling pound rose by approximately EGP 1.58, closing at a rate of purchase of EGP 12.81 a rate of sale of EGP 12.85, according to the CBE.
The CBE’s figures showed that the Kuwaiti dinar appreciated by EGP 3.69, reaching a rate of purchase of EGP 29.65 and a rate of sale of EGP 29.76. The Saudi Arabian riyal increased as well by EGP 0.29, registering a rate of purchase of EGP 2.37 and a rate of sale of EGP 2.38.