Cairo– The Egyptian pound witnessed a new decline against the US dollar, exceeding the 51 -pound barrier, amid escalating economic pressures, including the escape of “hot” money and the high domestic demand for the American currency.
This decline restores to the forefront fears of a new inflation wave that may worsen the living burdens of citizens, and affect price levels.
Data for the Central Agency for Public Mobilization and Statistics in Egypt – today, Thursday, showed that the annual inflation of consumer prices in cities increased to 13.6% last March compared to 12.8% of the previous month, exceeding the expectations of analysts.
A record decline for the pound
In the first trading of the week, the pound recorded a decrease of less than one pounds, bringing the purchase price to 51.22 pounds, and the sale price to 51.32 pounds per dollar.
This decline continued during the past days, as one of the banks yesterday morning recorded the highest price for the pound at 51.48 for purchase and 51.58 for sale.
This local decline came in light of a global decline in the dollar, after the imposition of customs duties by US President Donald Trump in recent days, highlighting the local character of the crisis in Egypt more than a reflection of external developments.
The multiplicity of causes .. from import to foreign exchange
- Import pressure and high demand
A number of analysts believe that one of the most prominent reasons for decline is the increase in demand for the dollar by Egyptian importers, after the decrease in the prices of many goods and services in European and Asian markets. This decline in global prices encouraged importers and businessmen to conclude new agreements, which caused increased pressure on the local currency.
- Hot money exit
According to the professor of economics at Cairo University, Dr. Rashad Abdo, the exit of tens of billions of dollars from hot money – which usually moves between the markets in search of rapid returns – contributed to increasing pressure on the pound.
He pointed out that these funds seek to cover financial centers that were exposed as a result of the accelerating declines in the global and regional financial markets.
- Weak foreign currency sources
Dr. Abdo added that the pressure on the pound is a candidate for escalating in the next stage, as a result of several factors, including
- Expansion of external borrowing.
- Increased need for billions of dollars to serve debt and its benefits.
- The economic activity decreased locally.
- The limited ability of Egyptian exports to provide sufficient dollar flows.
- The approach of the Hajj season is an additional factor in increasing demand for the dollar.
Despite this, the Egyptian academic believes that the current decline is “under control” as the price gap does not exceed one pound, allowing the government to intervene in time through corrective policies.
IMF pressure
Political economy professor Abdel Nabi Abdel -Muttalib links the pound with the visit of the recent International Monetary Fund to Cairo, and the resulting differences regarding the obligations required by the government.
He explained that the fund adheres to the implementation of policies such as the full editing of the exchange rate, the lifting of support on fuel, and the offering of sovereign companies on the stock exchange, and confirms that these demands increase the pressure on the pound and affect the confidence of investors.
Abdel -Muttalib pointed out that the exit of “hot” funds from the Egyptian market contributed to the decline in the pound, explaining that every one billion dollars leaves the market leads to a decrease that exceeds one pound in the exchange rate.
He also warned that the increasing talk about a new float of the pound is nourishing the demand for the dollar and reduces the supply.
An enlarged poverty
Abdel -Muttalib warned of the social and economic effects of the exchange rate fluctuations, which include increasing inflation rates and high prices of goods and services, which threatens to further deterioration in living levels.
He warned that a wide segment of Egyptians is threatened with slipping below the poverty line, in addition to the erosion of the middle class, and the high cases of commercial fraud, especially in vital goods such as food oil, as a result of traders seeking to maintain the margin of profit, which may expose consumers to severe health damage.
“Central” in an accurate position
Banking expert Wael Al -Nahhas believes that the dollar’s arrival at this record level against the pound, despite its global decline, indicates that the crisis is basically local, and stems from structural internal challenges.
It is likely that the Central Bank of Egypt will adopt a monetary policy aimed at protecting foreign exchange reserves, especially in light of regional tensions and fears of additional withdrawal of hot money.
Al -Nahhas added that the performance of the declining global markets increases the uncertainty, which pressures economic policies.
He explained that reducing the value of the pound may be a necessary step to reduce the attractiveness of transferring money abroad, but this will have a great social cost, especially for those with limited incomes, stressing the need for effective social protection programs to accompany any critical step of this kind.
Al-Nahhas stressed that the “central” may postpone the decision to reduce the interest temporarily to monitor economic and geopolitical developments, and pointed out that the reduction-if it is-will be less than the expected proportions (2-3%) to achieve a balance between supporting the economy and curbing inflation.
Beyond 51 pounds?
Economist Ahmed Abu Khuzayem expects that the decline in the value of the pound will continue against the dollar, and it is likely that the price will reach 59 pounds by the end of this year, according to the future contracts.
He pointed out that the government may resort to selling strategic assets or distinctive lands, as happened in the “Ras Al -Hikma” deal to provide the required liquidity, and explained that excessive dependence on local debt tools such as the treasury bills in the Egyptian pound deepens the crisis, and makes it vulnerable to any sudden movements in global markets.
Abu Khazim stressed that the constant bet on “hot” money flows to bridge the deficit in the foreign currency makes the Egyptian economy in a very fragile location. With every global crisis, the Egyptian market is witnessing a rapid displacement of that money, which reproduces the crisis repeatedly.
He concluded by saying that the majority of Egyptians -in their various classes -are on a date with harsh economic tests, including increasing inflation, declining purchasing power, and deteriorating living standards, which threatens to expand the poverty in Egyptian society in an unprecedented way.
