A state of anticipation and caution prevailed in the black market in Egypt during the past few hours, especially with the expectations of Citigroup Bank (NYSE:) regarding the pound not falling in the near future, as some experts expected a move against the pound soon, but it seems that these expectations inaccurate.
The Egyptian Prime Minister, Mostafa Madbouly, had commented a few days ago on the news of the pound’s decline: “Changing the currency rate has controls and a policy that the state sets and works on.” This indicates that the change in the pound does not occur except after taking specific measures that the financial authorities are working on. This was confirmed by the reports of “Citigroup” and “Goldman Sachs” regarding the future of the Egyptian currency.
Black market confusion
The dollar witnessed remarkable movements against the pound on the black market during the last period, due to expectations about the pound’s decline in the near future.
And vice versa, that is, whenever the situation stabilizes and reports or news emerge stating that the pound has stabilized and that it will not decline soon, the black market gets confused, which leads to the stability or decline of the dollar against the pound in the parallel market, which happened during the past few hours after the “Citigroup” report, and also The decision of the Egyptian government regarding exempting imports from customs duties for those coming from abroad.
In this context, Sahar El-Damati, an Egyptian banking expert, said that the decision to exempt gold from customs for those coming from abroad helps in resolving an existing crisis, re-establishing a balance between supply and demand and controlling prices, and calming the demand on the black market resulting from the increased demand of yellow metal dealers for the dollar to import gold. It covers the increasing demand of the citizens.
Sahar believes that the decision to allow the entry of gold received from those in charge will help in the abundance of supply, which is reflected in the stability of the current amounts.
Maged Fahmy, former Chairman of the Board of the Industrial Development Bank, and Muhammad Badra, a banking expert, agreed with the opinion of Sahar Al-Damati about the merits of the decision to reduce the demand for buying currency from the black market after making available a sufficient supply of gold.
The two experts explained that many citizens currently prefer to invest their savings in gold or the dollar as a store of value for fear of a decline in the value of the pound again in the coming period. The ability of banks to provide currency.
Maged Fahmy added that in any case: “Some Egyptians working abroad have reduced the volume of their savings transfers to Egypt in anticipation of a further decline of the pound against the dollar. Therefore, there is no concern about the consequences of the decision on the decline in the proceeds of transfers.”
According to Muhammad Badra, “This decision achieves the state’s interest in declining gold and dollar prices, and will contribute to easing the rush to buy currency from the black market to buy gold from abroad, as is happening now.”
The pound is stable.. and will not retreat soon
The black market has returned to calm again during the past few hours after the report of the bank, “Citigroup”, which indicated that the decline in the pound will not happen until several things happen, which indicates that the decline in the pound will not happen in the near future, which caused inactivity in the parallel market. This is because it is active in times of negative expectations regarding the imminent decline of the pound. The same thing happened when Goldman Sachs issued a report on the pound, which also stated that the Egyptian currency will not decline until several things happen.
Citigroup indicated in its report issued on Wednesday that the Central Bank of Egypt is likely to delay its decision on devaluing the pound at least until the end of next month. Where this expectation is the opposite of other bets that suggest a decline in the pound in the near future, according to what was reported by Bloomberg Agency.
Luis Costa of Citigroup said another sharp drop in the pound before the end of Egypt’s fiscal year ending June 30 could hamper the government’s goal of running a budget deficit of 6.5% and stabilizing the country’s debt relative to its GDP.
Costa added that the Central Bank of Egypt will likely wait for “abundant tourism” revenues, which amount to about 14 billion, before making a decision on changing the value of the pound.
However, one of the most important reasons that did not encourage the Central Bank of Egypt to devalue the pound is waiting for the outcome of government offerings, as it is expected that the sale of state-owned assets will provide dollar liquidity that will provide stability in the markets after the devaluation of the pound. Goldman Sachs (NYSE:) excludes that the central bank will resort to any move to devalue the pound against the dollar, before the government achieves significant progress in the asset sale file. Thus, these expectations caused great confusion in the black market during the past few days, as they indicate that the pound will not decline soon.
In this context, Goldman Sachs indicated that the reasons for the Egyptian government’s failure to apply a more flexible exchange rate in recent weeks is due to the futility of further reductions in resolving external imbalances with the already depreciating value of the pound, and the near-term benefit of export growth. The depreciation of foreign currencies is questionable.
The bank also indicated that the failure to devalue the pound is due to the risk of entering an inflationary spiral and devaluing the currency, as further weakness in exchange rates is expected to exacerbate already high inflationary pressures, which in itself is undesirable for Egyptian policymakers.
The bank continued: “Egypt’s financial authorities did not want to move to a flexible exchange rate because the pound is already undervalued. Multiple devaluations over the past year have left the Egyptian pound roughly 25% below its ‘fair value’ in the long run. long on a spot basis, as quoted from the 10-year average real effective exchange rate (REER).
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