Egyptian pound hits new low against US dollar despite flexible exchange rate regime – Africa

The Egyptian pound's exchange rate against the US dollar fell to a new low on January 11 after reaching 32.14 per greenback. The recent significant devaluation of the currency came just a few months after the introduction of a flexible exchange rate regime. According to the International Monetary Fund, monetary authorities in Egypt have committed not to intervene in foreign exchange markets.

Flexible exchange rate regime

Just a few months after plunging more than 15% against the US dollar, the Egyptian pound hit a new low of more than 32 units per greenback on January 11th. According to a Reuters report, the pound's recent devaluation has led some analysts to question the extent to which the central bank wants the pound to depreciate.

As reported from Bitcoin.com News in October 2022, the official exchange rate of the pound against the dollar fell from just under 20 units per dollar to 23.09 per dollar after Egyptian monetary authorities agreed to abandon the fixed exchange rate regime. In return, Cairo would receive a $3 billion financial package from the International Monetary Fund (IMF).

Following the currency's recent decline, some Egyptian analysts quoted in Reuters Test report believed the pound had reached its lower limit. Others like Goldman Sachs' Farouk Soussa said it was still difficult to conclude that the pound-dollar exchange rate had reached equilibrium.

"When portfolio investors start to come back in, then the market will have assessed the equilibrium. But there is no direct way to observe the equilibrium," Soussa reportedly said.

Monica Malik, an economist at Abu Dhabi Commercial Bank, said the pound's recent plunge alone did not guarantee investors would return. The economist said clearing the foreign exchange backlog could be a move that reassures investors. However, this requires new USD liquidity and, according to Malik, “it is currently unclear where this liquidity will come from.”

Meanwhile, in the IMF's staff country Egypt Test report, the global lender revealed that the government in Cairo had promised not to intervene in foreign exchange markets. According to their agreement with the global credit institution, Egyptian monetary authorities would only intervene in cases of excessive volatility.

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Terence Zimwara

Terence Zimwara is an award-winning journalist, author and writer from Zimbabwe. He has written extensively about the economic struggles of some African countries, as well as how digital currencies can provide an escape route for Africans.

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