Egypt's Beltone Financial said on Sunday they expect the Central Bank of Egypt (CBE) to float the pound “within hours," considering the president's recent meeting with the CBE governor as a “final political endorsement” of the decision.
The statement comes few hours after President Abdel Fattah al-Sisi’s meeting with CBE governor Tarek Amer, in which Sisi requested that low-income groups are shielded from the effects of "structural reform measures.”
Beltone experts projected that within the next two days, the pound’s exchange rate will stand between EGP 11.5 and 12.5 per dollar.
Egypt devalued the pound by about 14 percent to reach EGP 8.78 against the dollar in March in an effort to close the gap between the official and parallel rates but the move failed to boost dollar liquidity or close the gap, with the pound being traded at around EGP 13 to the dollar on the black market.
The firm issued a timeline for the expected floating, saying that the CBE could pursue a full-fledged flotation or an initial managed flotation funded by foreign reserves, in which they would announce Egypt’s shift to a “more flexible exchange rate regime.”
In case the CBE decided to pursue the second option, the move to a full-fledged float will follow in two or three weeks, according to Beltone.
Speculation over another devaluation has been growing since Amer told local newspapers in July that fixing the pound at an artificial rate was a grave mistake, saying that this policy doesn’t reflect the true value of the EGP against the dollar.
The timeline issued by Beltone shows that the period between October 4 and 9 would witness the International Monetary Fund’s (IMF) approval of Egypt’s $12 billion loan request, which according to Beltone will “act as the first shock to currency speculator.”
In the period between October 9 and November 17, the CBE as well as Banque Misr will launch a crackdown on parallel market to raise interest rates on certificate of deposits by 200-300 basis points, or higher, to over 15 percent per annum. An alternative would be holding a Monetary Policy Committee meeting to raise policy rates by the same magnitude.
Foreign reserves are expected to jump to $25-32 billion by November 6, as Egypt would have raised $3 to $5 billion in the Eurobond market, secured $2 billion from Saudi Arabia and potentially $1 to $2 billion through a currency swap with China, according to Beltone.
Egypt's current foreign reserves stand at $16.564 billion, still less than half of the foreign reserves Egypt had before Hosni Mubarak's removal when they were almost $36 billion.
The firm said that according to its timeline, which they described as "optimal to ensure success in securing funding from the IMF and Eurobond market," the official exchange rate will stabilises at around EGP 12 per USD in the period between mid-November and end of December.
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