The Egyptian pound (EGP) has crossed the 50 per USD mark for the first time, after the unexpected decision by the CBE to raise interest rates by 600 basis points. With Cairo embarking on its fourth currency devaluation since early 2022, what are the latest Egyptian Pound forecasts and price predictions for 2024 and beyond?
This decline occurred as the Central Bank of Egypt (CBE) implemented an unprecedented six percent increase in interest rates, while also allowing the value of the Egyptian pound to be regulated by market forces as an attempt to alleviate an already ailing economy.
The overnight lending rate has been raised to 28.25%, with the overnight deposit rate now at 27.25%. This move is aimed at expediting monetary tightening to hasten the disinflation trajectory and achieve a reduction in underlying inflation, as authorities are keen on addressing the acute shortage of hard currency and securing a new multi-billion-dollar loan from the International Monetary Fund.
Will Egypt weaken its pound further? What has been driving the value of the currency lower? In this article, we look at the currency’s recent performance and analysts’ latest Egyptian Pound (USD to EGP) forecast and price predictions.
Egyptian Pound (USD to EGP) Forecast & Price Predictions – Key Takeaways
- Egyptian Pound (USD to EGP) forecast in the coming days: Analysts at ING forecast USD/EGP can now stabilise at the 50.00 mark before a gradual transition to a more free-floating exchange rate materialises.
- Egyptian Pound (USD to EGP) forecast for 2024: Oxford Economics predicted that the value of local currency will drop somewhere between 55/$ and 60/$ by the end of the year and such depreciation might help close the widening gap with the black market.
- Egyptian Pound (USD to EGP) forecast for 2025-2030: Analysts are not offering yet an Egyptian Pound forecast for the next year, but official said that the interior ministry would use an "iron fist" against traders who were channelling remittances outside the banking system.
Egyptian Pound (USD to EGP) Forecast – Fundamental
Economic pressures are mounting in Egypt, giving no respite for the Middle East’s most populous nation. The Egyptian Pound dropped almost 40% against the US Dollar, while on the black market is now more than 50% weaker than its official rate, according to Bloomberg. Meanwhile, Moody's Investors Service downgraded the nation's credit rating at the beginning of March, citing a rise in the likelihood of a debt restructure even if it is unlikely to occur soon.
Egypt, which is experiencing its worst economic crisis in decades, has already depreciated its currency three times since the beginning of 2022, which has caused the value of the pound relative to the dollar to drop by half. However, there is still a chronic lack of hard cash, which is upsetting businesses because they find it difficult to pay for necessities.
Restoring investor confidence in an economy that has been hindered for the past two years by a shortage of foreign currency is thought to depend on a more flexible exchange rate, which has long been a major demand from the IMF.
In addition to causing backlogs at ports and delays in commodity payments, the shortfall has reduced local commercial activity.
According to Prime Minister Mostafa Madbouly, Egypt is preparing major transactions to guarantee liquidity. Additionally, once the currency transition takes effect, the country will collaborate with merchants to stabilize prices and provide priority to foreign currency access for importers of basic commodities.
'Enough and More'
In the past, Egypt made promises about switching to a more flexible exchange rate system, but instead, it returned to maintaining fixed exchange rates while a large portion of the economy was dependent on a black-market rate that might drop as low as 70 pounds.
Governor Abdalla called black market trading a "disease" that was indicative of a lack of faith in the financial system. The central bank still can intervene, as in other countries, in the case of excess volatility, Abdalla said.
The IMF, which agreed to add $5 billion to its existing $3 billion loan program with Egypt, has said it is looking for a sustainable and unified exchange rate that was s determined by the market. Egypt has agreed to implement structural changes as part of the program to control its debt, stabilize prices, and promote the expansion of the private sector.
The IMF, which agreed to add $5 billion to its existing $3 billion loan program with Egypt, has said it is looking for a sustainable and unified exchange rate that was determined by the market.
Under the program, Egypt has committed to undertake structural reforms to stabilize prices, manage the debt burden, and encourage private-sector growth.
Egypt officials said that following a 600-basis point hike on March 6, Egyptian interest rates, long amongst the highest globally, would now be on a "downward track."
"Iron First"
Two weeks ago, Egypt and the Emirati sovereign fund ADQ inked an investment agreement that includes the depreciation of the pound and an IMF agreement. The arrangement includes the payment of $24 billion for the rights to develop a prime stretch of the Mediterranean coastline.
Additionally, it calls for converting $11 billion in current deposits for use in various projects throughout Egypt. The $35 billion in total would be transferred within two months, according to the Egyptian administration.
In a sequence of gradual devaluations, the pound has now lost more than two-thirds of its value versus the dollar since early 2022, when the foreign exchange shortage grew acute.
Officials claim that visitor numbers increased at the beginning of the year, but the conflict in Gaza and attacks on Red Sea ships have endangered revenue from tourism and Suez Canal traffic, two additional major sources of hard currency.
Egypt's main source of foreign exchange, remittances from its overseas workers, declined significantly in 2017 due to predictions that the value of the Egyptian Pound would decline.
Mostafa Madbouly declared on March 7 that the interior ministry would use an "iron fist" against traders who were channeling remittances outside the banking system.
EGP weakens in challenging economic environment
Following the devaluation of 2016, which saw the USD/EGP exchange rate rise from 7.83 at the beginning of the year to 18.60 at the end, the value of the Egyptian pound versus the US dollar somewhat strengthened.
In 2022, the rate was 15.71. When the government depreciated the currency on March 22 in reaction to the conflict in Ukraine and growing inflation brought on by higher commodity prices, it shot up to 18.54.
As the state of the economy has gotten worse, the value of the pound has kept falling. In early August, the USD/EGP exchange rate crossed the 19-mark, and by the end of October, it had risen to 24.18. Smaller increases in the rate were sustained, and at year's end, it stood at 24.75. After that, it increased and reached 27.22 in the first few days of January.
As the state of the economy has gotten worse, the value of the pound has kept falling during 2023. The USD/EGP exchange started the year at 27.55, by the start of February it had risen to 30.23 and has remained around that mark right up until the start of April.
In October, the Central Bank of Egypt (CBE) continued to increase interest rates, this time by 200 basis points. The rates for overnight deposits, overnight loans, and the main operation were increased by 300 basis points to 16.25%, 17.25%, and 16.75%, respectively, on December 22nd, when the Monetary Policy Committee took another action.
In March 2023, the bank raised again its overnight interest rates by 200 basis points (bps), following a meeting of its Monetary Policy Committee (MPC), saying it aimed to bring high inflation into check.
The IMF Executive Board declared on December 16 that it has authorized a $3 billion loan to Egypt for a 46-month period under the Extended Fund Facility (EFF).
The package includes structural reforms to lessen the role of the state and promote growth in the private sector, as well as "a permanent shift to a flexible exchange rate regime to increase resilience against external shocks and to rebuild external buffers" and monetary policy targeted at gradually lowering inflation, moving away from lending schemes that provide subsidies, managing debt while raising social spending, and debt management.
After a two-week visit, an IMF team left Egypt on March 7, with the goal of coming to an agreement so that the $3 billion loan program's long-overdue first and second inspections of Egypt's economy could go forward. Ivanna Vladkova Hollar, the IMF Mission Chief for Egypt, reported that “excellent progress” had been made on important issues by her team and Egyptian officials. She also mentioned that further support from the IMF and other bilateral and multilateral partners is being investigated.
The Central Bank of Egypt (CBE) attempted to stabilize the already troubled economy at the beginning of March 2024 by implementing exchange rate flexibility, which lets market forces control the value of the Egyptian pound.
Additionally, the CBE increased interest rates by 600 basis points (6%), which was the second increase this year, according to a statement from the CBE.
As prices rose further, "the domestic economy has been recently weighed down by foreign exchange shortages, resulting in the existence of a parallel exchange rate market and constraining economic growth, as inflation continued to grow," the statement stated.
What is the outlook for the pound against other currencies for the rest of the year and beyond? Will it set new lows against the dollar or rebound?
USD to EGP Forecast – Technical
The Egyptian pound has been struggling against the US dollar for months, leading prices of essential commodities to hike, especially wheat, rice, sugar, and cooking oil, which has taken a toll on low and average-income households.
The pound fell beyond 50 against the dollar on Wednesday 6, after being officially held at about 31 to the dollar for almost a year while it reached more than twice that figure on the black market.
Looking at the USD/EGP chart below, each of the previous Egyptian Pound devaluations was followed by a consolidation, which marks the transition towards a more free-floating exchange rate. Due to this, the technical Egyptian Pound forecast is flat for the next weeks and bearish for 2024.
USD to EGP Price Predictions
Analysts forecast the Egyptian pound to remain vulnerable against the dollar in their EGP price predictions. While the floating of the currency will increase inflationary pressures and pressure consumption, it is expected to help address imbalances in the currency market.
Egyptian Pound Forecast from ING - USD/EGP can now stabilize at the 50.00 mark
ING analysts forecasted Egyptian Pound can now stabilize at the 50.00 mark before a gradual transition to a more free-floating exchange rate materializes.
Egypt's 600 bps rate hike and subsequent FX devaluation from the Egyptian central bank point to significant reform progress, with an improved IMF deal agreed following the recent announcement of investment from the UAE, said the Dutch bank.
Egyptian Pound Forecast from Oxford Economics – USD to EGP toward 55-60 mark
As Egypt still seeks a way out of its grinding foreign currency crunch, Oxford Economics has predicted Egyptian Pound will drop somewhere between 55/$ and 60/$ by the end of 2024 if regulators switch to a flexible exchange rate regime.
The Oxford-based think tank noted that such depreciation might help close the widening gap with the black market. Based on its forecasted Egyptian Pound exchange rate, Oxford Economics expects the annual inflation to peak in Q4 2024, reaching between 40% and 45%.
Egyptian Pound Forecast from Capital Economics – USD to EGP to reach 60-65 soon
London-based think tank, Capital Economics released a more pessimistic Egyptian Pound forecast before the central bank's decision, predicting the Egyptian pound to experience “an initial fall” to 60-65/$ if regulators embark on a devaluation soon.
Given Egypt has tightened fiscal policy with price hikes and an announced 15% cut to investment spending this year, all eyes are on what happens to the pound, explained the analysts from Capital Economics.
Egyptian Pound Forecast from Trading Economics – USD to EGP to reach 60-65 soon
The Egyptian Pound is forecasted to trade at 30.93 by the end of this quarter, according to Trading Economics' global macro models and analysts' expectations. Looking forward, the Egyptian Pound forecast for the next 12 months is to trade at 31.06 against the US Dollar.
This AI-based Egyptian Pound forecast for 2024 is bullish for the EGP, pointing toward a recovery after the latest devaluation. However, AI-based predictions should be taken with a grain of salt.
Other Forecasts and Price Predictions
Final words on the Egyptian Pound Forecast
If you are looking for an Egyptian pound forecast to inform your foreign exchange trading, keep in mind that analysts and algorithm-based predictions can be wrong. You should not use Egyptian pound forecasts as a substitute for your own research. Always conduct your own due diligence, looking at the latest news, fundamental and technical analysis, and analyst commentary.
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Sources:
- https://www.cbe.org.eg/en/news-publications/news/2024/03/06/05/42/special-mpc-press-release-6-march-2024
- https://www.imf.org/en/News/Articles/2024/03/06/pr-2459-egypt-staff-and-authorities-reach-agreement-on-reviews-under-the-eff-arrangement
- https://www.tradingview.com/symbols/EGPUSD/