The Central Bank of Egypt (CBE) allowed the Egyptian pound to deteriorate on Thursday, for the first time since February 2015. The bank offered $40m at a regular dollar auction and sold $38.8 at a price of EGP 7.63 per $1, marking a depreciation of 1.5% compared to the previous rate of EGP 7.53 per $1, recording an increase of 10 piasters.
“The CBE’s latest move comes as a surprise development to us, with the availability of sufficient import cover (foreign currency reserves of $19.6bn) and with black market rates almost tamed (trading at EGP 7.68 per $1),” said a Thursday report by Naeem Holding, Research Division.
This follows a previous depreciation in January/February 2015, where the pound deteriorated by roughly 6.4% reaching EGP 7.43 per $1.To determine impacts on the market, Naeem Holding said “we anticipate the pound to depreciate to EGP 7.73 per dollar” if the gap between the CBE auction and the bank rate remains unchanged.
According to the report, Naeem perceives that the CBE’s next target EGP/$ rate could be determined by trading account deficit, foreign currency reserves outlook, Gulf Cooperation Council (GCC) aid, and the strategy to tackle the black market rate gap.
Regarding transactional impact on companies under coverage, the report expects that it should be minimal as a result of the depreciating official EGP/$ rate, as most import and export companies, which mainly depend on foreign currency, are already factoring in the underlying rates in the unofficial markets, recording around EGP 7.70 per $1, according to the report.
“Conventionally under such situations, real estate stocks should continue performing well,” the report said, as investors will seek to lower their risks by investing in land and property.
Furthermore, the report named companies that will be impacted positively by the EGP depreciation, which are exportation companies such as Sidi Kerir Petrochemicals operating, Lecico, Arafa Holding and EFIC.
However, negative impacts could affect companies which import their raw materials such as Oriental Weavers, GB Auto, Ezz Steel, El-Sewedy Electric and Egyptian Electrical Cables.
