Egypt raises its hand from the pound (Al Jazeera)

The exchange rate of the US dollar in Egyptian banks settled below the level of 50 pounds, a day after it moved above this level of 30.85 pounds, the level that the Central Bank of Egypt maintained for a long time.

  • The selling price of the green currency was recorded at 49.70 pounds at Credit Agricole Bank, Abu Dhabi Islamic Bank, Arab Investment Bank, Abu Dhabi Commercial Bank, and Emirates NBD Bank.

  • While 49.60 pounds were recorded in the banks of Egypt, MEED, the Suez Canal, the National Bank of Egypt, the Egyptian Bank for Export Development, and the Egyptian Arab Real Estate Bank.

After the Governor of the Central Bank of Egypt, Hassan Abdullah, said in a press conference yesterday, Wednesday, that he no longer targets a specific exchange rate, but rather targets a unilateral level of inflation (price levels) (below 10%), a question arises: Who are the winners and losers from raising the banking institution? Her hand about the pound?

Not full float

In an interview with Al Jazeera Net, the chief market strategist at Orbex in Egypt, Assem Mansour, believes that what happened yesterday, Wednesday, is a movement of the exchange rate to specific ranges and not a complete float (leaving the exchange rate to be determined by supply and demand).

Hassan Abdullah pointed out yesterday, Wednesday, that the central bank has the ability to intervene based on market rules, as central banks in any country have the right to intervene if there are illogical movements.

According to Mansour, the list of winners and losers from the rise in the dollar exchange rate in banks includes the following:

The Egyptian pound fell against the US dollar (Al Jazeera)

First: the winners

  • Egyptian Stock Exchange

There are two impacts on the Egyptian Stock Exchange from yesterday’s developments. The first is the positive impact of the devaluation of the pound, which is represented by increasing the attractiveness of stocks for Arab and foreign investors.

It is denominated in pounds, and therefore the dollar began to buy more shares, which represents an opportunity for more profits, according to Mansour.

He adds that the decline of the pound in the parallel market after the Ras Al-Hekma investment deal led to a decline in the Egyptian Stock Exchange.

According to Mansour, curbing the activity of the parallel market would encourage Arab and foreign investors to invest in the stock market, so they would deal with a legal entity that does not involve any risk.

But on the other hand, the negative impact comes from raising interest rates by 600 basis points at once, which makes bank deposits and investment certificates a strong competitor to stocks as a safe investment that generates a direct return against an asset exposed to many risks.

Yesterday, Wednesday, the Bank of Egypt and the National Bank of Egypt offered three-year investment certificates with a decreasing interest rate of 30% for the first year, 25% for the second, and 20% for the third.

  • tourism sector

Mansour says that the coming period includes the blessed month of Ramadan, Eid al-Fitr, and Eid al-Adha, and although the Arab tourist expected to come to Egypt during this period will receive fewer pounds - even after the devaluation of the pound - compared to what the parallel market recorded during the last period, he will deal with banks. Legally, the banking system will benefit from these transactions.

  • Exporters

Mansour ruled out that exporters would benefit from the decline in the value of the pound as much as they would benefit from the stability of the dollar exchange rate and the provision of cash liquidity, saying that exchange rate fluctuations in the parallel market (black market) during the last period led to losses for many exporters.

  • Investors

Investors benefit from the devaluation of the pound, a measure that Mansour says clarifies the vision during investment feasibility calculations during the establishment of projects, acquisitions, and purchases of shares.

Second: The losers

  • Egyptian government

Mansour says that the Egyptian government finances the import of basic materials with the US dollar, and as it rises, the cost borne by the government will increase, as will the cost of what it will pay to service its debts.

He adds that raising the interest rate by 6% at once will increase the cost of the Egyptian government’s borrowing, as every 1% raises the cost of borrowing by 70 billion pounds ($1.41 billion).

Egyptian President Abdel Fattah El-Sisi said earlier this year that the basic needs that Egypt imports cost it a billion dollars a month, in addition to about another billion dollars for petroleum materials, in addition to a billion dollars a month for importing gas to provide electricity.

  • Consumers

Economists expect a wave of inflation (high price levels) as a result of the devaluation of the pound against the dollar before the government and the Central Bank can control it. Egypt depends on imports for a large percentage of goods, even basic goods, and the goods produced locally have their raw materials imported from abroad.

Mansour expects an increase in the prices of energy and its products, including oil, fuel, and natural gas, as well as increases in the prices of basic commodities as a result of the government’s increase in the cost of importing these materials.

  • Speculators

Mansour says that the fluctuations of the parallel market generated profits for many speculators, but the decline in the dollar exchange rate after the Ras al-Hikma deal and the subsequent devaluation of the pound removed something profitable for them.

Source: Al Jazeera