Egypt's pound records biggest one-day slide since March devaluation

The country devalued its currency three times in less than a year, losing 14.5 per cent of its value in October

A couple outside a currency exchange bureau in Cairo on Wednesday. EPA
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The Egyptian pound on Wednesday suffered its biggest one-day slide against the US dollar, signalling Cairo's intention to meet a key International Monetary Fund demand for a flexible foreign exchange mechanism, resulting in a further increase in inflationary pressures on the nation's ailing economy.

"It kept falling all day. It fell as many as six or seven times," said a cashier at the branch of a major private bank in Cairo. "I have to constantly monitor the rate as I serve customers' foreign currency dealings.

"Prices will shoot up again," he said.

The Egyptian pound was trading at about 26.60 to the US dollar late afternoon on Wednesday, up from about 24.60 at the close of business the previous day. It registered 24.70 at the opening of business today.

Egypt has devalued its currency three times since March. In a late October devaluation, the pound lost 14.5 per cent of its value. In the latest round, the currency headed a slide of as much as 6.6 per cent.

Currency flexibility is a key demand by the IMF, which last month gave the final go-ahead for a 46-month, $3 billion financial rescue package agreed in October. Another key demand is for the state to withdraw from a range of economic activities to allow the private sector a bigger role.

Egypt has been badly hit by the fall-out from the Russia-Ukraine war, which has worsened a foreign currency shortage that in turn led to a sharp decline in imports and a backlog of imported goods at ports.

"Whether this resolves the FX liquidity issues that Egypt has been facing will depend on whether we see significant FX inflows in the near term," Farouk Soussa of Goldman Sachs told Reuters.

"Key is to unify the exchange rate, which will require eliminating the FX backlog and ensuring demand for FX is met going forward," he said.

Separately on Wednesday, Egypt's two main state banks, Banque Misr and National Bank of Egypt, said in that they were offering one-year savings certificates with a return of 25 per cent. Similar returns in the past had never exceeded 20 per cent.

However, black market currency dealers in Cairo appeared oblivious to Wednesday's rise in the value of the dollar to the pound, and continued to buy the dollar for 29 pounds.

Egypt is suffering from double-digit inflation that reached more than 18 per cent in November. Its foreign currency crunch has hit a wide spectrum of industries dependent on imported materials and forced authorities to limit the withdrawal of foreign currency.

The foreign currency shortage was made worse in the weeks immediately after the outbreak of the Russia-Ukraine war, when investors in Egypt's lucrative debt market pulled out $20 billion.

Meanwhile, Prime Minister Mostafa Madbouly said on Wednesday that his government's efforts to clear the backlog of imported goods stranded at ports across the country were continuing and that it has managed to free $6.8 billion worth of goods since the start of December.

A cabinet statement quoted him as saying that his government was stepping up efforts to check the steep rise in food prices, promising again to deal decisively with "greedy merchants".

A minister in charge of food supplies told the parliament on Tuesday that the government had no intention to set food prices, dismissing the idea as meaningless and a relic of Egypt's socialist era in the 1960s.

Updated: January 04, 2023, 4:15 PM