Egypt’s central bank governor said yesterday that it was not the right time to float the Egyptian pound, which has come under intensifying pressure in recent weeks, but he left the door open to a possible devaluation.
Economists say a devaluation is all but inevitable.
But the timing of the move is key to maximise its impact while mitigating the inflationary effect, particularly as the government plans to introduce value-added tax this year and has yet to complete subsidy reforms.
“It is not possible to discuss the flotation of the pound now but a devaluation depends on what the bank sees at the appropriate time,” Tarek Amer said in comments carried by the state news agency Mena.
Egypt devalued the pound by almost 14 % in March to about 8.78 to the dollar in a bid to crush a black market that has burgeoned due to an acute shortage of foreign currency.
But the black market rate has since depreciated, putting renewed pressure on the central bank to take more action.
Speculation has mounted that a second devaluation was looming since Amer told local newspapers in early July that his focus was on stimulating the economy and moving to a more flexible exchange rate policy.
“Personally, I would not be happy if the exchange rate is stable but factories are halted,” Amer told Al Mal newspaper at the time.
Yesterday, five black market traders said the pound had depreciated to below 11.75 to the dollar on the black market, the weakest level in its history.
Egypt’s last devaluation pushed core inflation to seven-year highs.
The central bank has raised interest rates by 250 basis points since mid-March to slow inflation, but this has increased borrowing costs for the government and businesses.
In his latest comments, which came after a meeting of the economic affairs committee in cabinet, Amer said the coming period would see greater coordination between monetary and fiscal policies. The central bank said when it devalued in March that it would pursue a more flexible approach but has since held the pound steady.
It also said forex reserves would reach $25bn this year, a level Amer has said would allow for a more flexible exchange rate mechanism.
Egypt’s foreign reserves rose to $17.546bn in June, but remain at half their levels before the 2011 uprising ushered in a period of political turmoil that scared away tourists and foreign investors.