Will CBE devaluate the pound on Tuesday?

The banking market awaits the launch of the tender by the Central Bank of Egypt (CBE) to sell US dollars to banks on Tuesday in order to learn whether the CBE will depreciate the Egyptian pound against the dollar again. On Tuesday the CBE will resume the launch of tenders for US dollars after a break this past Tuesday due to the Eid Al-Fitr holiday. The CBE usually determines the price of the dollar in the market through these weekly bids. This tails the recent remarks by Tarek Amer, governor of the CBE, in which he stressed that stabilising the price of the Egyptian pound had been a significant mistake that cost the state billions of dollars over the past five years. Amer’s statement has stirred strong speculations in the market that the CBE may devaluate the national currency in the upcoming period; however, some have ruled out this possibility in the present time. The CBE devaluated the Egyptian pound by 122 piastres against the dollar on 14 March, causing the value of the US dollar to reach EGP 8.85. The next day the pound increased by 7 piastres and has since remained unchanged at EGP 8.78. The CBE explained in a report that followed the decision that the procedure’s aim was to correct the conditions of the money market and achieve monetary stability. Assistant general manager of the financial sector at a private bank operating in Egypt, Osama El-Menilawy, said that the market now expects the CBE to reduce the value of the pound once more after Amer’s recent statement. He added that despite the timing of this step being hard to predict, it may actually be close to becoming a reality. Banks will keep a close eye on the tenders launched by the CBE to sell US dollars starting Tuesday. The recent reduction of the pound’s value had both negative and positive impacts, according to El-Menilawy. He explained that the negative impact was the increase in import expenses, which resulted in a significant increase in the price of certain goods. The positive impacts include attracting foreign investments, especially since foreigners are now convinced that the official price of the pound against the dollar is realistic. The step will also be welcomed by the International Monetary Fund (IMF), and will have a positive effect on the increase in the value of foreign exchange export proceeds. El-Menilawy stressed that is it important that the step be accompanied by tight controls from the CBE on exchange companies in order to avoid an increase of the dollar price in the informal market.