HSBC forecasts Egyptian pound devaluation to EGP 40-45 against USD in Q1 2024

Ahram Online , Saturday 16 Dec 2023

British bank HSBC projected the Egyptian pound to experience devaluation, reaching EGP 40-45 against the US dollar, during the first quarter of 2024, according to a report by the bank on Friday.



These revised forecasts are higher than the bank's previous expectations, which placed the exchange rate between EGP 35 and EGP 40 per $1 during the same period.

The Egyptian pound has maintained stability in official transactions for several months, remaining at EGP 30.9/$1, following a series of three devaluations initiated since March 2022, which made the Egyptian pound lose over 75 percent of its value against the US dollar, the report highlighted.

However, the Egyptian pound in the parallel market reached EGP 50/$1, the report stated.

HSBC underscored that adjusting the exchange rate of the Egyptian pound is part of a broader shift towards a more flexible exchange rate regime.

“This adjustment is also expected to facilitate the completion of the long-awaited first review of the International Monetary Fund's reform programme,” HSBC added.

In October, Fitch Solutions predicted an 18.6 percent devaluation of the Egyptian pound, bringing it to EGP 38 against the US dollar by the end of 2023.

“The extent of the devaluation would depend on the Egyptian authorities' efforts to attract more foreign inflows through privatization programmes,” Fitch Solutions previously emphasized.

However, Kristalina Georgieva, managing director of the IMF, stated that Egypt's battle against soaring inflation rates remains a top priority. This focus may alleviate the pressure on authorities to enact a long-awaited devaluation.

Experts also suggested to Ahram Online that the devaluation of the Egyptian pound may be postponed slightly, as the country's primary objective currently is to address high inflation rates.

Throughout the first nine months of 2023, Egypt experienced a significant increase in inflation; however, the trend began to decelerate in October.

Egypt’s annual headline inflation decelerated to 36.4 percent in November, down from 38.5 percent in October, according to the Central Agency for Public Mobilization and Statistics (CAPMAS).

The country's delay in fully liberalizing the exchange rate regime poses a challenge to meeting the IMF's requirements and has contributed to the postponement of the two scheduled reviews in March and September.

The postponement of the Egyptian pound devaluation can be attributed to the dollar liquidity crisis facing the country, as well as the shortage of foreign exchange.

To address the lack of US dollar liquidity in the local market, the government has unveiled its plan to attract $191 billion annually within three years relying on Suez Canal revenues, remittances, commodity exports, and other resources.

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