Egyptian pound plummets to record low against dollar, marking 50% depreciation over 1 year

The exchange value of the Egyptian pound fell on Wednesday to a record low of LE32 to US$1, representing over a 50 percent loss in its value against the dollar in less than a year.

Within hours, the Central Bank of Egypt’s valuation had risen back to LE29.76 to US$1.

Banks operating in Egypt closed the trading day with marked variation in their valuation of the currency. The state’s National Bank of Egypt and Banque Misr were offering LE29.75 for purchase and LE29.80 for sale, while Credit Agricole Egypt closed on a purchase rate of LE32.05 and a sale rate of LE32.15. 

The pound’s exchange rate against the dollar has not yet settled, according to Goldman Sachs MENA analyst Farouk Soussa, who expects it to continue dropping until it approaches the black market price at around LE35 to $1. 

Merchants and importers, meanwhile, told Mada Masr today that, if they are allowed to bring their imports into the market, they will price them in line with an exchange rate approaching LE40 to $1.

The swing in exchange value is the fourth major depreciation of the pound over a one-year period. In the five years following a major currency devaluation alongside a $12 billion IMF loan in 2016, Egypt’s central bank injected foreign currency liquidity into the domestic banking system to maintain a partially pegged exchange rate.

But as foreign investors fled the emerging bonds market amid global instability, depleting Egypt’s supply of foreign currency, the central bank acted in March to allow the pound to depreciate 11 percent against the dollar over the course of a single day. 

In the meantime, the demand for dollars in the import-dependent domestic economy has remained high despite the restrictions that were placed on imports in 2022 and loosened earlier this month.

As Egypt closed a preliminary agreement for a new, $3 billion loan from the IMF in October, and in line with the fund's policy recommendations, the Central Bank of Egypt announced that it would move toward exchange rate flexibility. The value of the pound dropped by over 15 percent to reach LE23 to the dollar over the course of the same day, settling at around LE24 to the dollar by the end of the month.

A third devaluation saw the pound drop sharply on January 5 to hit an average selling price of LE27 to the dollar. 

In a Tuesday report detailing the terms of Egypt’s new agreement with the International Monetary Fund, the IMF said that the Central Bank of Egypt has committed to adopting a flexible exchange rate system. The arrangement, however, maintains that the CBE may intervene in “times of excessive exchange rate volatility” — without defining what those are — but that it would not resort to foreign exchange interventions or foreign assets in banks to stabilize the rate.

The IMF indicated that its approval of the US$3 billion loan came after pledges from “Cairo's partners,” especially Gulf Cooperation Council states, to help Egypt’s economy. They pledged not to claim their deposits at the central bank, amounting to US$28 billion, before 2026. 

These deposits currently represent about 82 percent of Egypt’s total foreign exchange reserves, which returned to a slow rise over the past two months, climbing to US$34 billion by the end of last year.

In addition to deposits, the IMF said that Egypt pledged to sell up to $2 billion worth of its assets to foreign investors, particularly GCC countries. During the next fiscal year, Egypt is set to sell assets worth US$4.6 billion in total, followed by assets worth US$1.8 billion in FY 2024/25.

Wednesday’s exchange rate fluctuations reverberated across the markets. Trading on the Egyptian Exchange’s benchmark EGX30 index closed up 4.4 percent, while Egyptian and international traders tended to sell. 

A number of gold shop owners in separate areas told Mada Masr that buying and selling stopped until the price of the dollar became clear, although initial prices witnessed a significant increase, with 21-karat gold rising from LE1,800 per gram yesterday to LE1,900 today. Gold in its different calibers is currently priced in Egypt at about 25 percent higher than the international market, as the gold market calculates the exchange rate at above LE34 to $1.

Merchants told Mada Masr that exchange rate fluctuations during the day also froze transactions on the foreign currency black market.