The third flotation and the black market.. Will the pound reach 30 levels soon? Powered by

© Reuters – The Egyptian currency ended flat on Thursday, despite rumors of a liberalization of the Egyptian pound and its fall to 28 levels in response to the International Monetary Fund’s demands.

The pound lost 25% of its value during the first flotation trip, from March 20 to October 26, and approximately the same percentage during the second flotation, from October 26 to today.

According to CBE data, it ended trading today, Thursday, December 8, at levels of 24.6440 pounds dollars for sale and levels of 24.5666 pounds dollars for buying.

Meanwhile, the black market or the parallel market returned to its head again, so that the dollar jumped in informal transactions to levels exceeding 31 pounds per dollar.

The black market is a term applied to the unofficial market for foreign currency exchanges, which the Egyptian government criminalizes through a set of severe penalties.

Why speculation?

After the Egyptian government succeeded in reaching an agreement with the International Monetary Fund at the end of last October, the final signing was scheduled to take place on December 7th.

However, the sudden decision by the Fund’s management to postpone signing until December 16th sparked a wave of anticipation among bankers regarding an imminent decision by the Central Bank of Egypt.

When does the vision become clear?

The Egyptians have days ahead to determine the fate of the local currency and the deductions that will occur.

  • The first day.. next December 16, which corresponds to the signing of the final loan agreement, noting that the fund’s management linked reaching a real exchange rate and Egypt’s receipt of the first installment of the loan at a value of $750 million.

  • The second day.. December 22, corresponding to the meeting of the Monetary Policy Committee of the Central Bank of Egypt, amid expectations that the markets will witness a sudden meeting without a scheduled date, similar to the previous two meetings.

what does he want

The main demands of the International Fund from the Egyptian government to complete the fund deal were summarized as follows

  • Complete liberalization of exchange rates to reach a real price for the pound against the dollar based on supply and demand mechanisms

  • Eliminate interest rate distortions by canceling initiatives supported by the Central Bank of Egypt and national banks

  • Abolition of restrictions on capital and current transfers, dollar deposits and their use in import operations

what did you give

Within the framework of the agreement between the Fund and the Egyptian government, the Central Bank issued many decisions to facilitate reaching this agreement.

  • The Central Bank of Egypt decided to cancel 5 financing initiatives and transfer them to the relevant authorities and ministries

  • The liberalization of exchange rates twice, the first in March and the second last October

  • Increasing the minimum ceiling for withdrawals and deposits in Egyptian banks

  • Raising interest rates by 200 basis points at the end of October

Is it worth it?

Market experts and major investment banks confirm that the Fund’s loan may not be the way to end the crisis, as the value of the loan does not exceed $3 billion.

However, the most important objective of the Egyptian government from this loan is to obtain the IMF’s guarantee of Egypt’s ability to pay and the success of economic reforms.

Market experts pointed out that the agreement qualifies Egypt to borrow nearly $7 billion from the international bond market, in addition to attracting billions of dollars from direct investments.

The Minister of Finance said that the financing gap that Egypt needs to bridge, according to estimates by the International Monetary Fund, is about $16 billion over the next four years.

It is noteworthy that the agreement between the Egyptian government and the IMF guarantees Egypt access to 9 billion dollars, at a rate of 3 billion from the fund, 6 billion from international partners.

So.. what is the real value of the Egyptian pound?

During the first flotation in March 2022, Goldman Sachs (NYSE:) and Morgan Stanley (NYSE:) set the fair value of the pound at 23.5 pounds to the dollar.

At this time, the pound futures contracts were trading near levels of 24.7 pounds per dollar.

After the second flotation, Standard Chartered Banks (NASDAQ: ), HSBC, and Golden Man Sachs, among them, expected that the value of the pound would range between levels of 26 to 28 pounds per dollar.

In contrast to these expectations, the black market or the parallel market has priced the exchange rate at the highest levels of 31 pounds to the dollar.

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