Egyptian pound falls to lowest level in seven months

Signs central bank is loosening controls lead economists to forecast further currency weakening

A currency exchange bureau in Cairo. The Egyptian pound could fall to as low as 17 to the dollar by the end of the year, one analyst forecasts. Photo: Bloomberg

Egypt's currency slipped to a seven-month trough of 16.23 per dollar on Thursday, its fifth straight day of losses in the wake of two months of trading nearly unchanged.

The pound, which later in the trading day retraced some of its losses, has weakened 2.2 per cent against the greenback since the start of the week, its biggest weekly decline since March 2017.

Emerging market assets had come under pressure around the world as investors ditched riskier assets as the fallout from the coronavirus pandemic ripped through global markets.

Egypt has been negotiating a support package from the International Monetary Fund (IMF) under a Stand-By Arrangement (SBA). Economists anticipated the IMF will be looking for at least a moderate currency devaluation.

The Egyptian pound veering away from the level of 15.7 to the dollar where it had been kept at for much of the past few months suggested the Central Bank of Egypt had started to loosen its grip on the currency, said James Swanston at London-based Capital Economics.

"But as global risk appetite has improved, policymakers presumably now feel more comfortable letting the currency weaken and we expect it to depreciate further over the coming months."

Ahmed Hafez, an analyst at Renaissance Capital who forecasts the pound will weaken to 17 per dollar by year-end said the move had been no surprise, but a "little bit faster than we had expected."

The central bank was not immediately available for comment.

The coronavirus pandemic has hit some of Egypt's biggest sources of foreign exchange in the last three months, especially tourism, which accounts for about 5 per cemt of gross domestic product, and remittances from Egyptians working abroad. It also triggered large outflows of foreign money from local debt markets.

Egypt's currency has weakened only marginally since the start of the year. This is in sharp contrast to other emerging currencies which have been battered by the crisis, with Brazil's real down around 20 per cent in 2020.

The SBA would help Egypt undertake structural reforms that would help eliminate constraints on private business, the planning minister said last month.

The IMF last month approved a $2.77 billion (Dh10.2bn) package of through its Rapid Financing Instrument designed to help Egypt close its balance of payments gap.