The jump in the value of the US dollar against the Egyptian pound following the decision to raise the cap on dollar deposits for importers came as no surprise for investment bank analysts who predict further devaluation for the local currency.
The decision to ease the regulations on dollar deposits was expected, senior economist at CI Capital Hany Farahat said.
“Easing those restrictions is a step by taken by the Central Bank of Egypt (CBE) to help the migration of the [dollar] from the black market back to the banking system,” he said.
The CBE is trying to coordinate among the various parties, Farahat added, referring to the meetings the governor of the CBE held with foreign exchange companies in order to discuss the recent developments occurring in the foreign exchange market.
Farahat contended that the recent steps taken by the CBE will lead to an inevitable devaluation in the Egyptian pound.
Farahat added that the value of US dollar against the Egyptian pound is expected to increase by 20% to 25%, reaching EGP 9.5.
In a December 2015 report issued by leading investment bank EFG-Hermes, the bank highlighted that the devaluation of the Egyptian pound is necessary to improve liquidity.
“The Egyptian market is preparing for devaluation,” the report said. The recent policy moves included “a large increase in credit defaults (CD) yields at government-owned banks, a surprise appreciation of the EGP against the USD, the clearing of the backlog of portfolio capital and dividends, and efforts to limit price inflation.”
It added that this devaluation will also lead to an equity market rally, where the prices of stocks surge for a sustained period of time.
Farahat confirmed the report’s forecast, saying that this devaluation will be “meaningful”.
Hany Genena, head of Equities at Beltone Financial, said that the value of the dollar in both the official and informal market will align.
Genena, whose statements were issued in an official report released by Beltone Financial, said the exchange rate in the white market [formal dollar market] and the black market [informal market] will bond in the coming weeks rather than coming months.
“The primary users of ‘white’ [formal market] dollars — the government and affiliated companies — are preparing to execute “painful” fiscal austerity measures, as per the prime minister’s announcement last Sunday,” he said.
“So, automatically, the government’s call on ‘white’ dollars will likely decline materially starting 2017,” the investment bank executive added in the report.
