Egypt's president Abdel-Fattah El-Sisi has appointed Tarek Amer as the new governor of the Central Bank of Egypt (CBE) following the resignation of Hisham Ramez, Al-Ahram Arabic news website reported on Wednesday.
Amer is currently deputy governor of the CBE, and formerly the CEO of Egypt's largest state-owned bank The National Bank of Egypt (NBE).
During his tenure, Ramez tried to halt the growing illicit parallel currency market and attempted to mitigate pressure on the value of the Egyptian pound against foreign currencies.
Ramez imposed a cap on dollar deposits of $10,000 per day and $50,000 per month to restrict the black market, which has thrived in the aftermath of the 2011 revolution.
He was widely criticised for leaving the pound overvalued at the expense of the reserves which declined to $16.3 billion, just above the three months' safety level.
The pound, which was allowed to fall through a sporadic managed float via foreign currency auctions during Ramez's tenure, currently stands at 7.93 to the dollar compared to 6.7 in February 2013, when Ramez started his term.
Ramez will remain governor of the central bank of Egypt until the end of his term on 26 November. Amer will begin his four year term the next day, according to a statement posted on the official Facebook page of Egypt's presidency.
Policy turnaround expected
Amer's appointment was welcomed by some, who expect him to adopt different policies from his predecessor.
"Amer is taking on a tough position at a critical time," Eman Negm, economist at Cairo-based Prime Holding, told Ahram Online.
"Hisham Ramez's policy was to target inflation and defend the pound," says Negm, "it is expected that anyone who would succeed him at this time must have a different agenda."
Walid Gamal El-Din, Chairman of the Export Council for Building Materials, welcomed the change.
"All these policies of limiting deposits which drive customers away from the banks must be re-assessed," he told Ahram Online in a telephone interview on Wednesday.
"We are optimistic about his appointment," Ahmed Sheeha, head of the import division at the Cairo Chamber of Commerce, told Ahram Online.
"Amer is a bold, visionary man who is capable of correcting Ramez's mistakes and wrong decisions," he said, citing the caps on dollar deposits.
"If the client brings in dollars, the bank should be able to accept them but these measures are the reason the foreign currencies go to the black market," he said.
Ramez defended the deposit caps in an 11 October interview with Ahram Hebdo. "The value of dollars sold to the banks went from $10 million a day to $150 million," he said.
"But only the priority sectors benefited from these amounts, which did not please the other businesses," he added.
Further devaluation expected
"Today’s announcement suggests a further devaluation of the pound – something we think is necessary to revive the economy – is likely," said London-based Capital Economics in a research note on Wednesday.
Ramez's successor has no choice but to introduce a managed float of the currency, said Gamal El-Din.
"It doesn't matter if the dollar reaches 20 pounds, what is needed is more predictability in the exchange rate policy instead of what has been happening under Mr. Ramez of a managed float, and then nothing for months, and then again a managed float."
”The CBE cannot devalue the pound endlessly to address the demands of businessmen when the consequences affect 90 percent of Egyptian society," Ramez told Ahram Hebdo.
The building materials industry has suffered from the dollar shortage, which has made it difficult to import foreign components, halting production and causing companies to lose contracts, said Gamal El-Din.
A devaluation will not be more harmful to the industry in terms of operating costs, he said, because it relies mostly on local raw materials.
"We expect him to also allow facilitated credits for importers," said Sheeha.
"Currently if my suppliers allow me a facilitated credit payment scheme where I can receive imported cargo and pay its cost in a period for up to 12 months, on the condition that I start a credit scheme in a bank. The the bank doesn't let me to start the scheme without having all the money ready in advance with a 10 percent cover as well," he said.
The CBE is planning to control imports in order to channel dollars to priority imports, Ramez told Ahram Hebdo in the 11 October interview.
Even under Amer, the CBE is unlikely to dramatically devalue the pound this year to any lower than 8.2 against the dollar, says Negm.
But this devaluation in itself will mean that urban headline inflation will exceed the double digits in November and December says Negm, due to an unfavorable base effect from the last two months of last year when inflation was low, and the inflationary effect of Egypt's Value-Added-Tax, which is expected to be introduced before the end of the year.