USD trading at EGP 17.50-18.00
Did the EGP break the 18 barrier? If the FX market were rational, it would welcome news of the Chinese agreement after yesterday saw the greenback changing hands at an absurd EGP 17.50-17.60 on the parallel market. Al Borsa’s sources pegged the rate at 17.60 during the day yesterday and Al Shorouk’s had it at 17.50. By Sunday evening, local news outlets were claiming that the EGP broke the EGP 18.00 ceiling and the headline over the front page of Al Borsa’s print edition simply reads “The Pound 18+” in massive type. The usual caveat applies: There’s no meaningful volume being traded on the market at any rate. Al Masry Al Youm adds another flavour to the daily story, saying FX bureaux in foreign airports are already adding premiums of more than 25% to their selling prices, with one source saying a bureau at Heathrow Airport selling is greenback for EGP 11.50 per USD 1 and another in Abu Dhabi selling them for EGP 13.35 per USD 1.
FX offices are holding the government’s feet to the fire. As we’ve said before, our take on what’s going on here is that the bureaux de change owners — the current bogeymen of the economy — are quoting absurd prices for the greenback to put pressure on the government to engage with them. They’re furious that they’ve been driven underground: Their licenses are being pulled and they face a permanent loss of market share if the government opens its own bureaux de change. The Federation of Egyptian Industries (FEI) seems to agree, with the head of its investment division, Mahmoud Suleiman, suggesting it is time to speak with the FX bureaus. The FEI is also calling for immediate movement on devaluation and, in parallel, is suggesting that the CBE should open its own exchange offices and offer “incentives” to get hoarders of small caches of USD to give up their greenbacks. The FEI outlined its recommendations in a policy paper to the government.
The Egyptian government itself has set an objective of not using its limited reserves to prop up the local currency — and the IMF is supportive, said outgoing IMF Director for the Middle East and Central Asia, Masood Ahmed in an interview with CNN (runtime: 2:39). His statement comes in response to whether the devaluation was required by the IMF. “The sooner one tries to move on freeing the exchange market the faster we’ll begin to see progress on economic activity,” he added.
Importers split on boycotting parallel market: Meanwhile, the importers division of the Chambers of Commerce is ambivalent about calls by the organization’s head, Ahmed El Wakeel, to suspend dealing with the parallel market for two weeks and to halt imports of non-essential goods for a three-month period. Importers’ division chief Hamdy El Naggar said most importers see the merit of the move, but he noted it is merely a suggestion and not an edict. The division’s board will meet on Tuesday to decide on whether to accept the proposal, AMAY reports.
With talk of further slowing imports hanging high in the air, Trade and Industry Minister Tarek Kabil said yesterday that the government has no intention of ordering an import ban at this time, Al Shorouk reports. The state is curbing imports in a way that does not violate trade agreements, said Kabil. He again noted that the country has shaved USD 7 bn from its import bill this year, AMAY reports.
To yesterday’s report of idle production lines, add a slowdown in food imports. Livestock importers tell Al Borsa that meat imports have effectively halted as there is no way to tell when the EGP will hit its limit. Companies are eagerly awaiting a devaluation before seeking FX. Imports of herbs and spices have reportedly stopped, while the timber division of the Federation of Egyptian Chambers of Commerce considers a moratorium on timber imports. A number of retailers are reporting a hike in basic food such as meat and flour. A number of pharmaceutical companies cut production by 50% due to the USD shortage, chairman of the FEI’s Pharma Division Ahmed El Ezaby told Al Borsa. Statements from pharma on this should be taken on face value as pharma companies have basically threatened to do this if the government doesn’t move prices on meds priced over EGP 30.