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The Ukraine crisis casts a shadow over the Egyptian pound..the solution is local

With experts who spoke to “Sky News Arabia” expecting an increase in pressure on the Egyptian pound in the coming period, they laid a basis for a solution, based on local production.

The exchange rate of the pound witnessed a new decline against the US dollar, to decline on Tuesday by 0.8 percent, and fall to the level of 18,557 pounds per dollar.

The rise in the dollar exchange rate in Egyptian banks coincided with the rise of the dollar index globally to its highest level since May 2020, which jumped on Tuesday, against a basket of major currencies, to levels of 100.2 points, an increase of 0.3 percent, coinciding with the decline of the euro by 0.2 percent and the sterling by 0.15 percent.

It appears that most emerging market currencies, including the Egyptian pound, will continue to struggle against the dollar next year, as the US Federal Reserve has implemented the expected tightening of aggressive policy, according to a Reuters poll of foreign exchange strategists.

What will happen to the pound?

The pound appears to be close to its fair value, according to a research note by the investment bank “Renaissance Capital” seen by “Sky News Arabia.” The bank estimated this value at 18.40 pounds to the dollar.

According to the memo, Yvonne Mahango, head of the Africa Research Department at the bank, expected that the Central Bank of Egypt would maintain exchange rate flexibility, and that the dollar would end in the current fiscal year at about EGP 18.50, and that the next fiscal year would reach EGP 19.40.

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pressure precautions

The central bank allowed the pound, which has been stable since November 2020, to fall 16 percent against the dollar on March 21, after the Ukraine war prompted investors to withdraw billions of dollars from Egyptian treasury markets.

And Bloomberg Agency expected inflation to accelerate in April, with the impact of the recent decline in the value of the pound on the economy.

To ease pressure on the exchange rate, Egypt resorted to Gulf support in order to reassure the International Monetary Fund and encourage foreign investors to return to Egyptian treasury bonds.

Gulf states announced the allocation of up to $22 billion to Egypt to help it overcome the currency crisis, the third such operation in a decade.

According to CBE data, international foreign exchange reserves fell to $37.08 billion at the end of March, compared to $40.99 billion in February.

The central bank said that despite this decline, the reserve “is able to cover more than five months of commodity imports, exceeding international indicators of the adequacy of reserves.”

The General Federation of Chambers of Commerce called on the Ministry of Finance to study a proposal for a decision that no one should deal in Egypt except in the pound.

Pressure relief

Dr. Mustafa Badra, professor of finance and investment, confirms to “Sky News Arabia”, the role of the Ukrainian war in connecting the exchange rate of the pound to 18.5 pounds against the dollar, expecting new pressures as US interest rates move to meet the high inflation rates.

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In the estimation of Dr. Alia Al-Mahdi, former Dean of the Faculty of Economics and Political Science at Cairo University, the exchange rate of the pound will remain dependent on indicators of economic performance and external transactions, especially with the increase in imports significantly over exports, with a decline in tourism as a result of the global economic crisis.

As for the solution, she told “Sky News Arabia” that it is to support local production and create advanced capabilities to reduce import, and thus reduce external effects on the local economy and currency.

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