Here’s why the Egyptian pound (EGP) is about to crash again

February 13, 2024 03:05 PM AEDT | By Invezz

Here’s why the Egyptian pound (EGP) is about to crash again — Image source: Invezz

Egyptian currency has plunged

On the other hand, the black market rate has jumped to 63.50, lower than its all-time high of 71.92. This means that the gap between the two is still substantial as the Egyptian government goes through a major economic crisis.

Therefore, analysts believe that the government will need to do another Egyptian pound devaluation as part of the ongoing negotiations with the IMF. Analysts at Societe Generale and Deutsche Bank expect that the government will push the pound to between 40 and 45 range. Other analysts see the range being between 45 and 50.

The Egyptian pound has been on a freefall because of the financial crisis in the country that has pushed inflation to 29%. It peaked at a record high of 38% in September last year and economists believe that it will remain above 20% this year.

As a result, Egypt’s inflation rate has remained above the country’s interest rates for a while. The country’s central bank delivered another rate hike this month to 21.25%. This means that Egyptians who have deposited their cash in interest-bearing accounts are still earning a lower rate than inflation, meaning that they are losing money.

Egypt financial crisis is underway

Egypt is also seeing a high unemployment rate while manufacturing production has remained under pressure in the past few months. The closely watched manufacturing PMI dropped to 48.1in January, pointing to a contraction in the sector.

Therefore, the Egyptian government is talking with the IMF as it attempts to unlock up to $10 billion in financing. The IMF has long insisted that the government should do some reforms, which include bridging the gap between the official and the black market rate. In a note, an analyst at Bloomberg said:

“As the situation turns more dire for Egypt, there’s one silver lining. External funders — the Gulf Cooperation Council, IMF, and Europe — are likely intervene in a desperate situation to avoid another pocket of instability in the Middle East.”

Egypt is not the only African country whose currency has plunged because of the ongoing dollar shortage in the region. The Kenyan shilling, Nigerian naira, and the Rwandan franc have all plunged to their record lows in the past few months.

The post Here’s why the Egyptian pound (EGP) is about to crash again appeared first on Invezz

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