Moody's says Egypt's pound flotation credit positiveSource: www.export-egypt.com 11/10/2016, Location: Africa |
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The Central Bank of Egypt decided to freely float the pound and raise key interest rates as part of reforms aimed at alleviating a dollar shortage and stabilizing the country's economy.
Moody's expects the equity-to-assets ratio and the estimated tier 1 capital ratio, that measure the financial health of the banks, to decline by1-2 percent with a 50-percent devaluation of the EGP. Egypt's central bank floats pound, raises key interest rates 300 basis points. Egypt's decision to float the pound is credit positive for Egyptian banks, Global credit rating agency Moody's said in a statement on Monday, adding that the decision would increase the availability of US dollars in the economy. Last week, the Central Bank of Egypt (CBE) decided to float the pound, allowing local banks to freely set the exchange rate of the EGP against foreign currencies — part of a set of reforms aimed at alleviating a dollar shortage, eradicating the black market and stabilizing the country's flagging economy. Moody’s said in an emailed statement that an "increase in the benchmark rates will support the banks’ profitability given their high exposure to short-term government securities." Egypt's cabinet announced that the government would increase the credit on food subsidy cards from EGP 18 to EGP 21 per month, starting in December, to offset the possible negative impacts of the economic reforms. Minister of Finance Amr El-Garhy said at the time that the move would increase state spending in this category from EGP 44 billion to EGP 50 billion. The government's reforms are part of an effort to gain International Monetary Fund board approval for a $12 billion loan package to be delivered over three years. The reforms are also aimed at decreasing Egypt's budget deficit, which currently stands at 12.2 percent of GDP, to less than 10 percent this financial year. |
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