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Wednesday, 11 January 2023

THIS EVENING: Did we find a market-clearing EGP-USD rate? + Why there’s room for some optimism

Good afternoon, friends, and welcome to a roller-coaster of a day.

THE BIG NEWS THIS AFTERNOON- There are indications that we found this afternoon a market-clearing rate for the USD.

And the magic number was … EGP 32.20 / USD. Today’s interbank auction saw the EGP fall in steady increments from an opening rate of 27.70 to the greenback to 32.20 / USD at around 1 pm CLT. In less than an hour, the EGP rallied back — to 31.85, then 31.75, 30.85, 30.05…

The EGP closed the day at 29.76 to the greenback, according to the Central Bank of Egypt’s website. That means the EGP had lost as much as 16.4% at its peak before clawing back losses to close down 7.7% for the day.

Where will it settle? We’re probably in the right ballpark.

  • HSBC said in a research note out earlier this week that it sees it in the 30-35 band, with 32.50 “as a tentative midpoint” (up from its previous midpoint of 26);
  • Goldman Sachs thinks we’re looking at EGP 33-35 to the greenback, as we reported this morning;
  • BNP Paribas said in a note to clients this afternoon that it is “reiterating its view” that the EGP will hit 37 in 1Q 2023.

Why is there room for a bit of optimism? The fall from 32.20 to the greenback came as trading quickly accelerated in the interbank market — the key word here is “trading.” The end of the EGP’s slide against the USD suggests that some folks holding USD were willing to start selling them for local currency starting at 32.20. This implies that a measure of liquidity may have been restored to the FX market.

Where did the money come from? Bankers have been mum on the subject so far today. Pundits will be looking for signs of how much of the liquidity came from savers selling USD holdings as they tried to time the top of the market (and flip over into high-yield instruments at the National Bank of Egypt, Banque Misr, and CIB) and how much was injected by state banks.

SMART POLICY? As we noted on Monday, an unconfirmed report suggested that the NBE and Banque Misr had lined up some USD 705 mn in hard currency facilities from global lenders including African Development Bank, Mashreq Bank, and other lends from the GCC and Asia.

How much changed hands today? The Central Bank of Egypt does not release liquidity figures that would give us a sense of how many greenbacks were bought and sold today. We’re hoping that top banking execs will hit the talk show circuit tonight to give us all more color. And the big things to look for will be January figures for both reserves and remittances.

What should we look for tomorrow? Some healthy volatility in the rate, for certain.

Does a market-clearing rate mean that 29.70 is the “new value” of the USD here in Omm El Donia? No. The central bank has promised the IMF that it has moved to a “durably flexible” exchange rate — a commitment the IMF highlighted at a press conference earlier this week. That means we’ve committed to seeing the EGP move in response to market forces. There’s a chance (as Goldman Sachs has noted) that we’ve overshot the fair value of the EGP. And in the absence of new inflows of hot money, foreign investment in public equities, FDI, or exports? The EGP could head back the other way.

In other words: Gone are the days when there was a “rate” for the USD / EGP exchange rate. In a flexible regime, the EGP is worth whatever it is worth on the day a transaction closes. That’s going to take all of us some getting used to — it’s also the hallmark of a real economy.


Leading the conversation in the international business press this afternoon: A system outage from the US’ Federal Aviation Administration, which affected the administration’s ability to communicate safety information to pilots, led all domestic flights in the US to be temporarily grounded. The outage has affected at least 1,200 flights. The story is on the front pages of CNBC, Reuters, the Financial Times, and the Wall Street Journal

** CATCH UP QUICK on the top stories from today’s EnterpriseAM:

  • All the details on the give and take of our USD 3 bn IMF loan package: The IMF yesterday published a package of documents on our USD 3 bn loan agreement, shedding light on the disbursal timeline as well as separate external financing it expects us to receive on the back of the program — and the long laundry list of policy changes that we’ve agreed to in return for the helping hand.
  • Inflation hits new high on weaker EGP: Figures released yesterday by state statistics agency Capmas showed annual urban inflation jumped to 21.3% in December, up from 18.7% the month before, driven by surging food costs.
  • ADQ-owned Abu Dhabi Ports Company is in talks with the Madbouly government to take over the development and management of the Suez Port under a usufruct agreement.


The national dialogue will kick off on Saturday, 14 January.

Davos 2023: The usual suspects will descend on the Swiss town for the annual meetings of the World Economic Forum on 16-20 January.

Egyptian expats have until 14 March to import cars for cheap: The expat car import scheme will conclude on Tuesday, 14 March with no wiggle room for extensions or exemptions, Finance Minister Mohamed Maait said during a presser yesterday, according to a Finance Ministry statement. The deadline was initially set for 15 February but was pushed after the ministry introduced amendments to make it easier for Egyptians abroad to take advantage of the scheme. Some 34k accounts have been created on the system for the scheme, though it’s not clear how many of those have submitted applications so far (the number of applications stood at just 4k toward the end of December.)

Check out our full calendar on the web for a comprehensive listing of upcoming news events, national holidays and news triggers.

☀️ TOMORROW’S WEATHER- We’re in for a mostly sunny day tomorrow, with temperatures expected to hit 19°C during the day before falling to a low of 10°C at night, our favorite weather app tells us.

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