The CBE kept the exchange rate unchanged at EGP 8.78 per USD 1 “confounding market expectations of an impending devaluation that had driven up stocks,” Reuters reported. The parallel market rate, on the other hand, has continued to soar, recording EGP 11.45 per USD 1, according to Al Masry Youm, EGP 11.50, according to Al Borsa, and Al Mal has it at EGP 11.42.

When will devaluation come? “Look for fiscal measures and IMF talks.” –EFG Hermes. The firm’s Simon Kitchen and Mohamed Abu Basha wrote in a research yesterday that they “still expect a devaluation to take place later this year or in early 2017,” saying the move would “”likely follow the introduction of VAT, further subsidy cuts, and a rise in tobacco prices, all of which are likely to be inflationary. We also expect that a shift towards a more flexible exchange rate is likely to involve support from the IMF,” citing remarks last week by CBE boss Tarek Amer that Egypt had the ability to borrow up to USD 10 bn from the IMF.
A coordinated approach: As we noted on Sunday, President Abdel Fattah El Sisi’s weekend sit-down with the prime minister, finance minister and CBE governor suggests the government is “pursuing a more coordinated approach to Egypt’s economic challenges,” Kitchen and Abu Basha wrote. “Inflation is already at a seven-year high following the March devaluation, and sequencing fiscal and monetary reforms to limit inflation impact is critical. The VAT is set to be introduced in 3Q16 — devaluation may have to wait until the inflation impact of the tax is clear.”

Meanwhile, the blowback from the rumored devaluation has hit the parallel market hard, as the EGP weakened to a record EGP 11.50 to the USD 1, good for a 30% gap with the official CBE bank rate of EGP 8.88. FX traders speaking to Al Borsa expect the EGP will continue to slide in the parallel market. The newspaper also note that the central bank has shuttered four exchanges right before last week’s Eid break.

The House Economics Committee is planning to call Amer to appear before it to answer on the “apparent confusion” and to outline a clear FX policy, a parliamentary source tells Al Borsa. He implied that the committee is of the opinion that Amer’s statement before the Eid break was a misstep and will stoke inflation.

Importers blame CBE Governor Tarek Amer for the EGP’s tailspin on the parallel market. Mohamed El Naggar, head of the Importers Division at the Federation of Egyptian Chambers of Commerce tells Al Borsa that he expects inflation to rise dramatically as a result of Amer’s hint last week that devaluation is in the cards.