Egypt: Domestic exchange market reportedly receives more foreign inflows

Egypt hails $925 million of foreign-exchange inflows as a sign that the local currency devaluation is working

In its statement, the Central Bank of Egypt (CBE) said that “the amounts of trading in the interbank market recorded an increase of more than 20 times during the past days, compared to the daily amounts recorded recently,” adding that it “monitored a set of positive indicators related to the exchange market, represented in a significant increase in banks’ foreign exchange earnings, whether from the local market, or the proceeds of remittances of Egyptians abroad, as well as from the tourism sector.”

Egypt’s central bank has announced that there is a rise in foreign inflows in local banks through the foreign exchange market and other sources over the past few days.

These foreign-exchange inflows are expected to support the release of more goods stranded at the ports.

Goods began backing up in Egyptian ports after the central bank placed restrictions on imports in February. Last month the central bank removed those restrictions, and importers have been scouring for dollars to get their goods released.

On the other hand, there are reports of ongoing negotiations between the Holding Company for Construction and Development to sell some of its land to Gulf investors.

Also, there are other reports about wheat and corn imports after the latest foreign-exchange inflows.

Banks were able to fulfil more than $2 billion in requests by Egyptian importers over the past three days, in addition to the requests other clients, the central bank statement added, reported Reuters.

Egypt saw more than $925 million in foreign-exchange inflows since Jan. 11, the central bank said, spotlighting what it called a series of “positive indicators” in the wake of the North African nation’s third devaluation in a year.

After the latest major move for the pound mid-last week, interbank trading activity was more than 20 times the recent daily average, the central bank said Monday in a statement.

Additional foreign currency from local sources, remittances from Egyptians working abroad and tourism also flowed into the market over the past three business days, the central bank statement added.

That enabled Egypt, which has been grappling with a foreign-exchange drought, to cover over $2 billion of importers’ needs in the past three days, according to the regulator.

The currency has plunged more than 16% in 2023, after a pledge by authorities to allow greater flexibility in the exchange rate that was key to securing $3 billion in International Monetary Fund assistance.

The Middle East’s most populous country had already devalued the pound in March and late October as part of efforts to buoy an economy heavily exposed to the shockwaves of Russia’s invasion of Ukraine.

The Egyptian pound fell 0.3% to 29.6 per dollar on Monday, halting a two-day gain. The currency slumped to a record low of 32.1 last week, narrowing its gap with the rate on a black market that emerged as Egyptians struggled to find dollars through official channels.

The Egyptian pound is the world’s worst performing currency this year, and measures of short-term historical volatility show the swings are the most extreme globally.

The series of devaluations is also taking its toll on annual inflation, which hit a five-year high in December and piled more pressure on consumers in the country of over 104 million people.

The central bank also said: the net international reserves rose despite repayment of $2.5 billion in debt in November and December combined;
the reserves cover 5.4 months of imports; and banks are marketing currency derivatives to enable hedging against exchange-rate volatility.

Egypt promised it would shift to a “durably flexible” exchange rate when it reached an agreement with the IMF for a $3 billion financial support package in October.

It turned to the IMF for assistance after Russia’s war in Ukraine pushed up its bills for wheat and oil while dealing a blow to tourism from two of its largest markets, Ukraine and Russia, a key source of hard currency.

It has been loosening its dollar peg in jumps, with a view to letting the currency float freely.