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Thursday, 25 August 2016

Bloomberg’s scenarios for Egypt’s currency management

Four scenarios for devaluation could play out: Egypt could float the EGP, use “shock therapy,” move the EGP to managed float regime, or implement a gradual devaluation, Bloomberg’s Ahmed Namatalla and Ahmed Feteha believe (autoplay video). None of the economists surveyed by Bloomberg expect Egypt to move directly to a free float straight away. Shocking the market by weakening the EGP is risky given its history of failure — and would need to bring the EGP as close in value as possible to its real market rate to have a chance of success. EFG Hermes’ Mohamed Abu Basha predicts the CBE will use foreign funding to support a one-off devaluation and move back to a managed-float regime like the one implemented between 2003 and 2012. Exotix economist Alan Cameron sees the country weakening the EGP in incremental amounts, saying, “the question is, can you close the gap to an acceptable level? Something around 10 percent?” Cameron said. Doing nothing is an option, on paper, but it will be just delaying the “inevitable,” possibly blocking IMF funding and making borrowing more expensive. (One spot of advice: Read the very well-reported story. Skip the vapid autoplay video with some talking head spouting paper-thin analysis as he cribs from Namatalla and Feteha’s piece.)

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