Foreign Currency

Is a currency devaluation on the horizon?

The Central Bank of Egypt (CBE) decided to raise interest rates by 2 percent, causing some analysts to speculate that this move may be an indication of an upcoming devaluation of the local currency.

As a result of CBE’s decision, key interest rates have reached record levels of 22.25 percent for lending and 21.25 percent for deposits, the Emirates News Agency (WAM) reported.

Read more: Central Bank of Egypt holds interest rates steady for third time in a row

The majority of analysts were not anticipating this interest rate hike. According to a Reuters poll of 16 analysts, the average forecast suggested that the CBE would maintain interest rates at their current levels.

Monica Malik, chief economist at Abu Dhabi Commercial Bank, highlighted in a Reuters report that this increase in interest rates is expected to precede the devaluation of the Egyptian pound and the announcement of an agreement to increase the value of the IMF loan.

However, there are opposing views among analysts regarding the impending currency devaluation. Some analysts believe that the rate hike is the beginning of a process to tighten monetary policy. They suggest that this process will take time and will be contingent upon increased liquidity in the foreign exchange market.

Currency disparity

The gap between the official and parallel markets for the Egyptian pound compared to the U.S. dollar has widened. Currently, the exchange rate stands at around 30.85 pounds per dollar in banks, while in the parallel market, it has exceeded 70 pounds per dollar in recent days.

Strain on Egypt’s fragile economy

Egypt’s already fragile economy has been further impacted by the Gaza war, which has negatively affected the tourism sector. These rapid and unfavorable developments have also led to a decline in shipping activity through the Suez Canal, which is a significant source of foreign currency for the country.

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