EGP to Witness Its 4th Depreciation Against USD By June: Fitch Solutions

Fitch Solutions said that the fourth Egyptian pound devaluation will occur in the context of progress on the divestment strategy Egypt is enacting. Egypt is currently working on reducing the government footprint in the economic activity for the private sector; chiefly through its initial public offering (IPO) and privatization programmes.

The Egyptian pound is expected to depreciate against the US dollar, mainly driven by slow capital inflows, chiefly in the form of foreign direct investments (FDIs) and the widening difference between the official and parallel (black) market rates, Fitch Solutions said .

In its updates on the MENA Monthly Outlook report, Fitch projected the Egyptian pound will be devalued from around the current EGP 31 per US dollar to EGP 35 per US dollar by June, and gradually weaken toward EGP 38 per US dollar by November.

Egypt has devaluated its local currency against the US dollar three times since March 2022, around when the war in Ukraine sparked, and since then the Egyptian pound lost over 75 percent of its value against the greenback.

The report also expected the weakening currency, and rises to administered prices such as fuel, telecommunications and electricity – expected by the beginning of the FY 2023/24 which starts on 1 July – to feed the inflation wave in Egypt where it would exceed 40 percent y-o-y in August 2023.

The report further anticipated Egypt’s inflation to average 36 percent in 2023 on an annual basis, which would be the highest on record.

For first time in 10 months, Egypt's annual headline inflation dropped to 31.5 percent in April, down from 33.9 percent in March, but still above the 14.9 percent seen in April 2022. This is according to the latest readings published by Central Agency for Public Mobilization and Statistics (CAPMAS).

Moreover, Egypt's annual core inflation rate recorded 38.6 percent in April 2023, a slight decrease from 39.5 percent in March, according to data released by the Central Bank of Egypt (CBE) Wednesday.

Noteworthy, Fitch Solutions raised in April its forecast for Egypt’s inflation in 2023 to 32.3 percent, up from the average of 25.9 percent that it expected a month earlier.

The Monetary Policy Committee of the CBE is scheduled to convene to review the key interest rates in light of the recent global and local economic developments.

The meeting comes amid expectations that the CBE could apply a fourth Egyptian pound devaluation against the US dollar and hike the key interest rates to fulfil its commitments of adopting flexible interest and exchange rates under the country’s IMF-backed deal.

Since the start of 2023, the CBE has raised the key interest rates by two percent (200 bps), while it has hiked the interest rates by a total of 10 percent (100 bps) since March 2022 as a bid to curb the soaring inflation in the country.

Meanwhile, Fitch’s report maintained its forecast for Egypt’s real GDP growth in 2023 at 3.4 percent.