Investing.com – The Egyptian pound witnessed a new decline in the official exchange market, dropping by two piasters during trading today, Wednesday, amid strong expectations that the coming days will witness an extraordinary meeting of the Central Bank.
It seems that the black market is witnessing a sharp rise in anticipation of the International Monetary Fund meeting next Friday regarding the final signing of the fund loan.
Rumors are spreading about a new devaluation of the Egyptian pound, after media reports indicated that the International Monetary Fund required access to a flexible and real exchange rate for Egypt to obtain the first installment of a loan of 750 million.
Egypt had previously agreed with the International Monetary Fund to obtain a $3 billion loan, and after December 7 was set for the final signing, the meeting was postponed to next Friday, December 16.
Today, Wednesday, exchange rates witnessed a new decline in national banks by two piasters, to record the exchange rate of the dollar in the National Bank and Banque Misr, at levels of 24.66 dollars for selling and 24.61 dollars for buying.
In private banks, the Commercial International Bank, the National Bank of Qatar, Abu Dhabi Islamic Bank, the National Bank of Kuwait, and Med Bank, the exchange rate rose by two piasters, to levels of 24.7 pounds per dollar for sale, and the price of 24.67 pounds per dollar for purchase.
According to the Central Bank of Egypt’s price screen, prices have not changed so far and are still at yesterday’s levels. After the update, the selling price will rise to 24.72 pounds per dollar, while the purchase price will reach levels of 24.64 pounds per dollar.
The disappearance of the black market
Goldman Sachs Bank (NYSE:) said that devaluing the pound to a level below what is necessary will not lead to the disappearance of the black market, while the devaluation, if it is more than what is happening in the parallel market, will stimulate currency dealers to sell their proceeds to the official market, thus alleviating the supply crisis.
It also gives greater confidence and comfort to foreign investors and encourages the inflow of capital, but this is conditional on the existence of a reliable and noticeable commitment that the official supply will remain sufficient to meet the demand.
The bank expected that the Egyptian authorities would likely move in the coming days to take a decisive decision, in the coming days and even before the previously scheduled meeting on December 22.
He also expected the Central Bank of Egypt to raise interest rates by 1% at its next meeting on December 22, but said that there is a possibility to hold an extraordinary meeting of the Central Bank during the current week.
Eliminate the black market
US bank Goldman Sachs (NYSE:) said that the pound’s continuation at current levels is unsustainable, but added that “another devaluation will not solve that problem on its own.”
The bank added that the parallel currency market has always been a good measure of the extent of foreign liquidity imbalance in countries that set formal or informal capital controls, but that is not always the case.
He pointed out that in Egypt, the effective real exchange rate – which measures the external purchasing power of the local currency – shows that the pound is undervalued.
At the same time, the parallel market price is rising sharply and recording about 36 pounds to the dollar – at the time of writing the bank’s report – about 33% higher than the official price.
Goldman Sachs said, in its report, that according to its vision, the main driver behind this difference in the exchange rate is the lack of foreign currency liquidity in the monetary system.
BNP Paribas (EPA:) expects the Central Bank of Egypt to hold an extraordinary meeting before the International Monetary Fund discusses the Egyptian loan at a meeting on December 16, according to a note issued by the bank.
There are two days left until the International Monetary Fund meeting on Egypt, and this means that if BNP Paribas’ expectations are true, the Central Bank of Egypt will meet this week.
Devaluation of the currency and raising interest
The French bank expected the Central Bank of Egypt to move more decisively towards floating the pound, and to raise interest rates by at least 2%.
The bank also expected, in its memorandum, that the IMF would approve the extended facility agreement before the end of this year, but it said that, nevertheless, it is unlikely that the fund will disburse the first tranche, estimated at $750 million, to Egypt before the central bank takes decisive steps towards flexible exchange rate.