A number of bank leaders sent a message of reassurance to dealers and observers of the exchange market, who panicked after the volatility in the price of the US dollar against the Egyptian pound since the liberalisation of the exchange rate on 3 November.
Bank leaders said that this is normal in all the countries that have floated their currencies, as the market becomes bound to the supply and demand of foreign exchange.
They expect the price to stabilise and the pound to gain ground against the dollar and other currencies once the state increases revenues in hard cash.
The price of the pound against the dollar has seen severe fluctuations following the decision to float the national currency.
On 3 November, trading began at a guiding price of EGP 13; yet, it shortly climbed to EGP 18 in the following days.
In the second week, the price at banks was headed in a downwards trend, back to EGP 15. Shortly thereafter, in the third week, prices went up again to EGP 18, settling at the end of the week at EGP 17.25-17.9.
Vice chairperson of the National Bank of Egypt (NBE) Yehia Aboul Fotouh said that the flotation decision left the price of the pound against the greenback up to supply and demand. “The price going up and down more than once a day is normal,” he stressed.
He told Daily News Egypt that all countries that followed the same policy saw volatility in their national currency value before stabilising. He noted that the availability of the foreign exchange to cover demand on imports is more important than the volatility itself.
He pointed out that the black market for hard cash will not go down easily. “Stakeholders of the black market will not simply give in,” he said.
However, he assured that all banks are working hand in hand to close the door of the black market through offering fair and attractive exchange rates to encourage clients to change their dollars at banks and meet the demand of importers.
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 amount of time 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.”
According to Mohamed Abbas Fayed, the managing director and vice chairperson of Bank Audi Egypt, liberalising the exchange rate is a new experience for Egypt and it will take the market some time before it settles.
Fayed told Daily News Egypt that the hike in the greenback’s price against the pound is normal as it is linked to supply and demand mechanisms.
He explained that banks had to raise the price of selling US dollars recently to meet the high demand of investors and individuals, in light of a shortage in supply.
He expected the price to go down when banks’ hard cash resources increase.
He denied that banks raised their prices to hit the unofficial market that was re-emerging in the past week. “Banks are not chasing the unofficial market,” he said. “It only relies on supply and demand.”
Fayed pointed out that only two factors can increase the value of the national currency against foreign currencies; the activity of the Egyptian Exchange (EGX) and tourism, which are the two fastest methods to increase the inflow of foreign currencies.
He added that indicators forecast a strong tourism comeback, especially in Sharm El-Sheikh, Hurghada, Luxor, and Aswan. He also said he expects many people to change their hard cash and invest their proceeds in pounds into the EGX, especially local and foreign investors.