Egyptian pound under pressure after US interest rate hike

Expectations that the price of the dollar will reach 19 Egyptian pounds (AFP)

The US Federal Reserve’s decision to raise interest rates on the dollar by 75 points has driven the economic situation in Egypt into a state of extreme confusion in the financial markets and anticipation in the gold markets, chambers of commerce and industry, and the business community.
While everyone is waiting for the meeting of the Monetary Policy Committee of the Central Bank of Egypt, which did not change the date of its scheduled meeting a month ago, scheduled for next Thursday, June 23, concerns began to seep into the markets, with indications of a gradual rise in the price of the dollar, since the beginning of this week, Affected by the state of anticipation before the meeting of the Federal Reserve, and the increase in local demand, after the government agreed to the import of some to allow. factory needs.
The price of the dollar reached between 18.69 and 18.74 for purchase and 18.75 and 18.79 for sale, prompting experts to see a new wave of rise against the pound, according to the US Federal Reserve’s decided to raise the highest interest rate on the dollar, since 1994, when interest rates on the dollar increased 3 times in a row, and this is expected to shift in subsequent stages.

Arab economy

Live updates

negative repercussions

Abdel-Khaleq Farouk, expert on government budgets, confirms that there are multiple consequences of the rise in interest rates on the dollar, as the structure of the Egyptian economy is controlled by a monopolistic, private and sovereign group, which has made it an anomaly if rational policies and prices do not apply to it.
The economic expert said in statements to Al-Araby Al-Jadeed that raising the interest rate would lead to more flight of the hot money flowing to Egypt, on its way to the most profitable and stable US market at present, and its cost . of loans for the Egyptian budget and projects that depend on the dollar as a large part will increase In the budget of its projects, the volume of debt on the public treasury, and the trade in dollars from the private sector, especially banks and international companies, will increase.
The economic expert warned against Egypt’s continued dependence on loans and that the dollar would control its financial policy, stressing that “these crises we are going through will not stop, because Egypt must currently reconsider all its disgraceful economic policies, which the country will bring. to the point of bankruptcy. ” as he put it.
Farouk explained the effect of raising interest rates on the dollar as it would subject the Egyptian pound to a further depreciation as the government securitized the pound each time.
He expected that the increase in the interest rate would lead to a further rise in the price of petroleum products, the industry of which is currently controlled by foreign and Arab companies, which control oil and gas production projects and direct the economy according to their interests. imports, and an increase in poverty rates, which approached 60% of the Egyptian population, according to a World Bank report released in June 2019.
The economist warned against exacerbating the problems of the middle class, which will be severely affected by this “destructive financial policy”, after its simple savings that it has built up over time, and for which it is currently paying, for food and its basic needs, has eroded, with the real value of revenue declining It was before 2015, according to official Central Agency data.
Farouk questioned the validity of the data currently provided by government agencies on poverty rates and prices, emphasizing that the numbers provided by these agencies do not verify the importance of the figures, and sometimes clash between the many government agencies that issue them. .

Prudent transactions in the exchange market

Banks and exchange companies witnessed cautious transactions, affected by the news of rising interest rates on the dollar, with no fundamental change in exchange rates among all banking branches, pending the Monetary Policy Committee’s meeting at the end of next week, and gold markets saw relative stability.
Experts point out that the government does not want to expand the door to imports, except for equipment and urgent production inputs determined by the Committee to Study the Problems of the Industrial Sector and Investors in the Council of Ministers, after the pound 2% of its value against the dollar since May 27, when the government opened the door Imports to meet the needs of some industries, and to negotiate with the IMF to fund the Strategic Commodity Imports Support Program.
Experts expect the pound to continue depreciating against the dollar to reach 19 pounds by the end of the agreement with the International Monetary Fund, which is currently investigating to lend Egypt between 3.5 and 6.5 billion dollars, within 3 months .
Experts doubt whether the local currency is depreciating in agreement with the IMF, while Tariq Amer, governor of the Central Bank, claims that the price of the dollar against the pound is subject to the law of supply and demand.
The increase in interest rates on the dollar came at a time when Egypt was trying to obtain loans from international bodies of $ 8 billion, and direct investments from Arab countries amounting to $ 22 billion, to finance the permanent budget deficit and the price differences management is needed to buy wheat and petroleum products from abroad, which has risen At record levels, unprecedented for food since 1961, according to the Food and Agriculture Organization (FAO).

energy

Live updates

Egypt’s hard currency reserves declined for the third month in a row to $ 35.4 billion at the end of last May, a decrease of $ 2 billion, aimed at repaying debt to the IMF and international institutions.
On the other hand, Standard & Poor’s Rating Agency provided relative reassurance to the Egyptian market by confirming in a report last Tuesday that the risk of a lack of global liquidity on the way to emerging markets in light of the huge interest in global markets on major currencies, will be less severe for Egypt compared to five markets Other emerging companies, including Turkey and Tunisia, are expected to contribute to the Gulf countries with urgent funds to support the Egyptian economy.
Experts point to the possibility that the Central Bank will postpone raising the interest rate on the pound, at its meeting next Thursday, to increase it by 2% at the next August meeting, as there are indications of US intentions to raise interest rates on to increase the dollar in the coming period.
The US Federal Reserve has raised interest rates on the dollar for the third time in a row by 75 basis points to reach 1.75%, the highest in the United States since 1981.
The performance of the Egyptian Stock Exchange Index has fallen by 16.6% since the beginning of this year, affected by the exit of some $ 20 billion worth of hot money aimed at the money market in Egypt, with high interest rates, for the dollar. Experts fear that the performance of its main index, EGX30, will increase in the near future.

Leave a Comment