Egyptian pound to US dollars (Photo: AP)
The official exchange rate of the greenback has slipped to under EGP 18 for the first time in several months, state-owned MENA news agency reported.
The dollar has dropped to an average rate of 17.95 at Egypt’s largest private bank, the Commercial International Bank (CIB), and 17.91 at the state-owned National Bank of Egypt (NBE) and Banque Misr, according to a survey conducted by Ahram Online on Monday.
The Central Bank of Egypt (CBE) still maintains an average rate of EGP 18.08.
Experts told MENA that the availability of the greenback in banks is on the rise, with some banks facing a drop in liquidity in domestic currency amid growing demand.
Hany Farahat, a senior economist at Cairo-based CI Capital, told Ahram Online that there have been several developments that have had a positive impact on the rate of the EGP.
Farahat says that banks are seeing a greater inflow in foreign currency and an almost nine-fold increase in foreign investment in domestic debt instruments since the floating of the pound in November 2016.
On Monday, the CBE said there was $54 billion in foreign inflow and a surplus of $8 billion since November’s flotation.
In June, the CBE lifted the limits on foreign currency transfers set in January 2014 to control a dollar shortage.
Fitch Ratings said on Monday that the removal of foreign-currency transfer limits increases the availability of foreign currency, which allows banks to provide loans needed by foreign currency borrowers, particularly importers.
“The banks no longer have any outstanding demands for imports,” Farahat said, adding that the 2 percent increase in interest rates in May has also had a positive impact on the pound's exchange rate.
The CBE is expected to implement another raise in interest rates to face the fuel hikes during its upcoming Monetary Policy Committee meeting on Thursday.
Since May, the deposit rate, loan rate and the rate of the CBE’s main operations have increased to 16.7 percent, 17.75 percent and 17.25 percent respectively.
“All this increases demand for the domestic currency,” Farahat said.
The drop in the exchange rate comes days after Egypt announced a new cut in energy subsidies under the government's five-year plan to gradually scrap its fuel subsidy bill from the state budget.
Fuel subsidy cuts were part of an economic reform package adopted in July 2014 that aimed to ease the country's growing budget deficit and secure a $12 billion loan package from the IMF.