“HSBC” sets the target level of stability of the Egyptian pound against the dollar

A report issued by the British “HSBC Global Research” bank expected that the Egyptian pound would find a floor at a level between 30 and 35 against the dollar in the short term, indicating that interest rates may rise with inflation expected to rise beyond that at 25% in the first quarter. From 2023.

This comes as the pound fluctuated between gains and losses against the dollar during the third session, after the last devaluation of the currency on January 4.

The pound fell to a level of 27.2 against the dollar, which raised the decline losses to 49.3% since the devaluation of the currency in March of last year.

The current round of currency devaluation is part of a long-awaited campaign to rebalance Egypt’s external accounts in the wake of the external shocks of the past year, but the near-term expectations are still difficult and uncertain, according to Forbes, which was viewed by Al Arabiya.net. .

And “HSBC” said: “Even a decline to more than 30 against the dollar, which raises the losses in the pound to 50% (raising the dollar’s ​​gains to more than 100%), may not put pressure on the high import bill sufficiently or lead to a strong recovery.” “Sufficient remittance flows are immediate, but current account pressures are easing.”

Meanwhile, the British Bank said that Egyptian exports of goods and services increased by 20% on an annual basis in the third quarter of last year, but the decline in transfers prevented the current account from achieving greater gains.

Given that the need for labor in the Gulf region is very high, HSBC believes that expatriate flows were not necessarily lost, but were delayed due to uncertainty about the exchange system, pointing out that they will rebound once the expectations of the pound stabilize.

High inflation

HSBC expects inflation to pick up, and has set a target for the Consumer Price Index (CPI) to move above 25% in the first quarter of this year and not fall below 20% year-on-year until next year.

He also expected another rate hike of 3%, or 300 basis points, during the first quarter of the year, which would bring the nominal interest rate to 19.75%.

The Central Bank of Egypt has set a target of 7% for annual general inflation for 2023, with inflation targets of 7% and 5% in the fourth quarter of 2024 and 2026, respectively.

However, that seems a long way off given how the currency is trading at the moment.

In a related context, the two largest government banks in Egypt announced the issuance of investment certificates with a return of 25% for a year to be paid annually, or 22.5% interest payable monthly, to combat high inflation, which is approaching its highest level in 5 years.

However, further depreciation of the pound is expected to increase inflation by eating away at purchasing power.

IMF deal

The International Monetary Fund has approved a 46-month financing agreement with Egypt under the $3 billion Extended Fund Facility (EFF).

The agreement included the immediate payment of $347 million to help meet Egypt’s balance of payments needs and support the budget.

But Egypt faces a strict repayment plan for its foreign debt, which includes paying $1.25 billion in bonds in the first quarter.

However, the majority of Egypt’s payments are made to multilateral organizations led by the International Monetary Fund, totaling $2.5 billion this year and $15 billion by the end of 2026, which means Egypt will have to pay at least $10 billion to the IMF, according to the program. The new EFF, according to HSBC calculations.

The Bank of England believes that “the financing that has already been committed from bilateral and multilateral sources does not appear to be sufficient on its own to meet the immediate financing needs,” which is why the government is expected to resort to alternative financing sources.