Egyptian pound drops nearly 14% after Ukraine war prompts dollar flight

2022-03-21 08:05

Shafaq News / Egypt's pound depreciated by almost 14% on Monday after weeks of pressure on the currency as foreign investors pulled out billions of dollars from Egyptian treasury markets following Russia's invasion of Ukraine.

The pound dropped to 18.17-18.27 against the dollar, Refinitiv data showed, after having traded at around 15.7 pounds to the dollar since November 2020.

The central bank also hiked overnight interest rates by 100 basis points in a surprise monetary policy meeting.

Egypt has been in discussions with the International Monetary Fund about possible assistance, people close to the negotiations have said, but it has not announced any formal request.

"This is a good move to make as the devaluation of the pound moves it roughly in line with its fair value and it could pave the way for a new IMF deal," said James Swanston of Capital Economics.

"However, it will be key whether policymakers now allow the pound to float more freely or continue to manage it and allow external imbalances to build up once more, possibly resulting in future step devaluations like today's in the future."

The IMF in Cairo was not immediately available for comment.

Monday's weakening of the pound could catalyse inflows of foreign currency, while investors who already had money in Egyptian treasuries would be unlikely to sell now, said Farouk Soussa, senior economist at Goldman Sachs.

"The move is designed to trap liquidity in the market and bring in investors who might be sitting on the sidelines waiting for the pound to bottom out," he said.

(Reuters)

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