BofA sees “mildly more flexible” USD / EGP rate on the horizon: The USD / EGP rate could be “mildly more flexible” over the coming period as Egypt’s FX reserves are high and our carry trade remains “high enough,” Bank of America Merrill Lynch said in a report out this week. The bank says recent comments from the Central Bank of Egypt on potential volatility in the currency “are to be interpreted as preparation to medium-term normalization of the FX regime.” The EGP broke the EGP 17 / USD 1 barrier in May, at which point it had risen 5.7% against the greenback since the beginning of the year, making it one of the world’s best-performing currencies. The rally was driven primarily by continued USD inflows into government debt instruments and a pickup in tourism receipts.

The usual suspects continue to be Egypt’s risk factors: The bank points to “a financing gap, reform slippage due to the socio-political backdrop or a hasty IMF program exit, reversal of portfolio flows, high inflation, loss of competitiveness, political instability, eroding REER competitiveness, and security issues” as the main risk factors to our economic stability. However, the bank notes that “reform momentum is intact” and that macro stabilization has continued. The government is probing a potential non-loan program with the IMF to push ahead with structural reforms over the next couple of years, Finance Minister Mohamed Maait had said last month.