Sunday,22 October, 2017
Current issue | Issue 1127, 20 - 26 December 2012
Sunday,22 October, 2017
Issue 1127, 20 - 26 December 2012

Ahram Weekly

Dollar worries

Al-Ahram Weekly

AFTER almost two years of holding out against depreciation, the Egyptian pound seems to be giving in.

The value of the pound dropped to its lowest level against the dollar in eight years, depreciating rapidly since the beginning of December to sell for LE6.19 per dollar on Tuesday.

Only a week ago it had been selling for LE6.09.

Though the increase appears minimal, the seriousness of the situation emanates from the fact that in a month the pound is losing more ground than it has lost since the revolution.

Any increase in the value of the dollar is bound to reflect in higher prices as Egypt is a net food importer and its manufacturing sector heavily depends on imported inputs.

The drop in the value of the pound comes on the back of continued uncertainty regarding Egypt’s political situation, which has prompted investors to want to pull out of the market in search for safer havens.

The prospect of losing the value of their savings is also pushing Egyptians to convert their savings into dollars. All that coincided with the usual high demand on the dollar at this time of the year, since many businessmen and investors need the money to pay their due financial obligations to banks.

The pound has been slipping for the last two years amid weaker performances by main foreign currency earners like tourism and foreign investment. And the dwindling hard currency reserves, which fell from $35 billion in January 2011 to stand now at a mere $15 billion, have meant that of the Central Bank of Egypt (CBE) is unable to support the pound by increasing the supply of dollars in the market.

The $15 billion threshold is needed to ensure a minimum of three-months coverage of food imports. Should reserves drop below the $15 billion margin, Egypt risks having its credit rating downgraded by international rating agencies.

The Egyptian currency has dropped, as well, against the Euro. It is now sold for LE8.08, falling from LE7.9 at the beginning of the month.

While many experts expect that the pound will continue to depreciate in the days ahead, they also believe that finalising the International Monetary Fund (IMF) loan deal of $4.8 billion may reinstate confidence in the market and bring back much needed hard currency.

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