Central Bank to announce today a new US Dollar central exchange rate
Egypt, Economics, 12/13/2001

Egyptian Prime Minister Atef Ebeid said the Central Bank of Egypt (CBE) would announce today new Egyptian pound-US dollars exchange rate.

This has prompted speculation for a fresh devaluation of the Egyptian pound though some quarters have expressed fears that these measures would not be enough to halt the Egyptian pound slide.

"The Central Bank will announce tomorrow a new recommended pound/dollar investors' confidence in Egypt's economy"; he also said the CBE would inject $ 2 billion into the foreign exchange market by the end of June 2002.

The Bank, Ebeid said, would first pump 500 million US dollars to replenish a dollar supply in the Egyptian market.

"Over the period from January to June, 250 million US dollars would be pumped into the market every month," Ebeid said.

He added that the government would not introduce any policies that affected imports or exports or limited economic activity.

He said Egypt was committed to transparency. An attempt to introduce import-financing controls last month was abandoned after it caused panic on the foreign exchange market.

Many analysts have been calling for devaluation at Egypt's main sources of foreign exchange such as tourism and Suez Canal receipts have been hit in the aftermath of September 11 attacks on the United States.

Egypt devalued the pound on August 5 by about six per cent.

Within the "managed peg" system introduced in January 2001, the pound has traded since August in a band of three percent on either side of a core pound-dollar rate of 4.15 pounds.

The weakest legal rate is 4.2745 though black market rates recently touched five pounds.

Some public sector banks have started to ration dollars, allowing only those people who present a valid passport and travel tickets to buy up to the permitted maximum of $ 500. Exchange bureaux have reported limited dollar availability.

Analysts hope that Egypt, which now has a new Central Bank governor with wider powers, will take aggressive steps to deal with a burgeoning economic crisis.

"Clearly the Egyptian pound is overvalued. There needs to be a devaluation," a London-based analyst was quoted as saying by Routers. But he added that the best move would be to peg the pound to a trade-weighted basket, not just to the dollar, and to expand the band.

Egypt's biggest trading partner is the European Union. ''That would certainly improve the competitiveness of the Egyptian pound," he said.

Ebeid said that Egypt was very cautious against new foreign debts, estimating the Egyptian total foreign debts at 26 billion US dollars.

"Regulations set President Hosni Mubarak limited new debts only to finance new feasible investment projects," he said, adding that personal contacts Mubarak made over the l990s reduced Egypt's foreign debts from 46 billion US dollars to 26 billion.

Dr. Ebeid also declined to comment on the new pound-dollar exchange rate. "Let's wait and see what rate the CBE would declare," he said, adding that the bank was enjoying more independence in running the country's monetary policies.

Egypt recently conducted a Cabinet reshuffle that cancelled the Ministry of Economy portfolio and prepared a new CBE law to give the bank further independence.

He added that studies on the impact of the September 11 attacks on the US, and the subsequent US strikes against Afghanistan, showed that Egypt's hard currency revenues would be affected till next June.

"The forecast stressed the need for a package of new economic policies," he said.

He added that in a bid to encourage local industry and limit imports, the government would give priority in purchases to local products.

"On the other hand, export promotion policies would be passed seeking to increase the competitiveness of Egyptian production in foreign markets," he noted.

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