On January 11, the exchange rate of the Egyptian pound against the US dollar hit a record low of 32.14 yen to the dollar. The significant depreciation came only a few months after the flexible exchange rate regime was put in place. According to the International Monetary Fund (IMF), Egypt’s monetary authorities have pledged not to intervene in the foreign exchange market.
Flexible Exchange Rate Regime
The Egyptian pound hit the 32 per dollar level on January 11, just months after plunging more than 15% against the US dollar. The Egyptian pound hit a low of 32 per dollar on January 11. According to a Reuters report, the pound’s recent depreciation has some analysts questioning the extent to which the central bank wants the pound to fall.
As Bitcoin.com News reported in October 2022, after the Egyptian monetary authorities agreed to abandon the fixed exchange rate regime, the official exchange rate of the pound against the dollar went from just under 20 per dollar to fell to the 23.09 per dollar range. In return, Cairo will receive a $3 billion financial package from the International Monetary Fund (IMF).
Following the currency’s fall, some Egyptian analysts quoted in a Reuters reportbelieved the pound had reached its lower limit. Others, like Farouk Souza of Goldman Sachs, said it is still difficult to conclude that the pound-to-dollar exchange rate has reached equilibrium.
“When portfolio investors start to return, that’s probably when the market has judged equilibrium. But there is no direct way to observe equilibrium,” Sousa is reported to have said.
Monika Malik, an economist at Abu Dhabi Commercial Bank, said that this plunge in the pound alone does not guarantee that investors will return. The economist said that clearing the foreign currency backlog may be one step in reassuring investors. However, that would require new U.S. dollar liquidity, and according to Malik, “where that liquidity will come from is currently unclear.”
Meanwhile, in the IMF’s Egypt Staff Country Report (37) (38), global financial institutions found that Egypt is economically unstable. The international lenders found that the Cairo government has pledged not to intervene in the foreign exchange market. In accordance with an agreement with global lenders, Egyptian monetary authorities will only intervene in case of excessive volatility.
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