US-based financial services firm JP Morgan forecasted that the Egyptian pound will be devalued by 35% in 2016, in a report issued on 15 March.
The predicted 35% reduction includes the 14% devaluation by the Central Bank of Egypt (CBE) on 13 March, in additional to further gradual moves.
JP Morgan expected the CBE’s Monetary Policy Committee (MPC) would also increase interest rates by 50 basis points. Annual inflation is also anticipated to accelerate to 14% amid the application of the value-added tax (VAT).
The US firm anticipates that the Egyptian government will finalise an International Monetary Fund (IMF) loan before the end of the fiscal year.
“Although government officials have denied any IMF negotiations, we believe reduced availability of financial support will likely accelerate IMF talks during the IMF/World Bank meetings in April,” the report said.
As a result of a growing trade deficit, and a decline in foreign direct investment (FDI) and support from the Gulf, JP Morgan predicted challenges in reducing the deficit in Egypt’s balance of payments—“that’s why the IMF loan would unlock further multilateral support.”
CBE’s Tarek Amer previously said the government will consider floating the Egyptian pound when the foreign reserves reach $25-30bn.