Egyptian pound (EGP): rate stable but currency could plunge soon

The Egyptian pound has held steady at 31 in the past few months as the currency peg sticks. According to TradingView, the USD/EGP pair was trading at 31 on Wednesday, where it has been stuck at since March 2023. This price is much higher than its historical average following several currency devaluations. The pair was trading at 15.65 in January 2022.

USD/EGP chart

However, it is still difficult for Egyptians to access the official exchange rate. According to EG currency, the black market rate for the Egyptian pound stands at 54, much higher than the official one. 

Therefore, analysts at HSBC believe that Egypt will likely devalue its currency again this year since the election has ended. They see this devaluation pushing the USD/EGP exchange to 40 in the first quarter of the year.

Egypt, like other African countries,is going through an economic crisis and the ongoing war in the Middle East is not helping. Economic data published on Wednesday showed that the country’s inflation dropped to 33.70% in December from 34.60% in the previous month. 

It has been in a steady decline after peaking at 38% in September last year but is still much higher than in most countries. A new currency devaluation would likely trigger a sharp inflation rebound since Egypt imports most of its items like energy and food. 

Meanwhile, the central bank has maintained steady interest rates in the past four straight meetings. It has left rates at 19.25% in this period and warned that the economy was slowing. Like other central banks, it hiked rates from 8.25% in 2022 to almost 20% in a bid to fight inflation.

All signs are that the Egyptian pound will depreciate soon against the dollar unless something happens. Besides, maintaining the current informal deal is quite expensive for the government. 

That devaluation will likely be a condition that the IMF will demand when making its decision on the next disbursement. In a statement this week, the US said that it will support Egypt’s economy and reforms. The IMF is considering expanding its $3 billion loan program to the country.