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Wednesday, 2 August 2017

Reserves grow to USD 36 bn

Central bank reserves are at their highest level ever. Provisional central bank data showed that net international reserves rose to a record-high of USD 36.036 bn at the end of July, from USD 31.305 bn at the end of June. CBE Governor Tarek Amer tells Al Mal that July saw an influx of USD 7.7 bn. He attributed the USD 4.7 bn net gain to both foreign inflows, which came in at USD 3.7 bn, and the banking system drawing in USD 4 bn. Egypt received a USD 1.25 bn tranche from the IMF loan in July. The previous peak in central bank reserves was in December 2010, closing that month at USD 36.005 bn. Reserves had dropped to a low of USD 19 bn in October of 2016, right before the EGP float the following month.

“Egypt’s reserves now cover almost eight months of imports, which adds credibility to the new currency regime,” CI Capital economist Hany Farahat tells Bloomberg’s Ahmed Feteha. The data show that Egypt is able to attract strong inflows, “implying the country’s currency problems are almost over,” he said. Prime Minister Sherif Ismail said the reserve level “means that the Egyptian economy has recovered,” the Associated Press reports. Uhm…

More than USD 13 bn has flowed into Egyptian T-Bills as of July 25, with yields soaring over 22 percent, according to Bloomberg. Foreigners snapped up debt totalling USD 3.5 bn in July. Most of the inflows go into the CBE’s repatriation fund, which backs expedited transfers of funds for foreign investors.

Capital Economics, meanwhile, says in a research note (pdf) that the CBE “has also been intervening in the foreign exchange market to prevent the EGP from appreciating, in the process rebuilding its FX reserves. This upwards pressure on the currency appears to be related to a jump in capital inflows, which we think it is likely to be temporary. Indeed, foreigners’ net purchases of Egyptian equities, which jumped immediately after the devaluation of the EGP late last year, have now started to fall.” As a result, the firm expects the EGP “to weaken modestly against the USD over the next few years.”

…All of this comes as World Bank Egypt Country Director Asad Alam said Egypt’s economic reforms are improving the country’s competitiveness and attracting new investments, according to Al Borsa. Alam says the central bank and government have achieved tangible successes in improving the business climate domestically and that the private sector is starting to see benefits from the reforms to energy policy and new legislation.

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