Egyptian expats split as pound sinks 48%

Dubai - Some say it's timely; others expect temporary balance in market, followed by 'storm' of skyrocketing prices

As Egypt's central bank floated its pound on Thursday, devaluing it by 47.7 per cent to an initial guidance level of 13 pounds to the dollar, Egyptian experts and residents voiced their concerns.
Some believed it was a timely decision while others expected a temporary balance in the market, followed by a "storm" of skyrocketing prices in all products, be they necessary or not.
"It would appear that Egypt has taken the unprecedented step to stop the prolonged woes for the Egyptian pound by allowing the currency to float freely and find its bottom level naturally. This is likely to be very positive for the local stock market in the short term, because it has been accompanied by additional measures to help support the local economy," said Jameel Ahmad, vice-president of corporate development and market research at FXTM.
"Basically, what Egypt is hoping to find is a bottom level for its currency, which should in theory result in a bottom being priced in at last. The only issue with this is that there is still a chance that it might not work out that way in reality, like when the Nigerian naira was allowed to float freely earlier this year which then resulted in additional milestone lows over the months ahead. The two situations are a little different however, with the Naira's woes being far heavily linked to its correlation to the price of oil as a major oil exporter," he added.
Sherif Al Wakeel, an Egyptian businessman here, told Khaleej Times that floating the Egyptian pound has been a much-awaited decision.
"It will give a knock-out [blow] to the currency black market."
Banks in Egypt will now be in control, he added. "Banks will be fixing and exchanging US dollars as per the market price day and night, during weekends and holidays, but exchange houses will suffer a lot as they will be offering no additional service or can no longer attract the customer."
Nagy Al Sayed, a factory manager in Sharjah, said the devaluation of the Egyptian pound by almost 48 per cent is going to affect Egyptian expats in the UAE in one way or another.
"The prices are already so high in Egypt, and Egyptian residents are expected to remit more to Egypt to take advantage of the situation."
However, Khalid Al Wakeel, an Egyptian businessman, believed the other way around.
"It is still too early to decide, and we have to wait to see how far the Central Bank of Egypt will be in control."
Mohammed Salah, an Egyptian anchor, said he suffered a big blow due to this devaluation.
"I obtained a bank loan of $20,000 here to complete the construction of my new house in Egypt, but the value of that loan has lost some 20 per cent of its value due to the decision."
Essam Mahmoud, an Egyptian engineer, said this decision will definitely affect the people in Egypt. "Hopefully, it will curb the black market that shot up the rate change by more than five pounds in a week."
Naguib Sawiris, the billionaire chairman of Orascom Telecom, said on his official Twitter account that freely rating the pound price as per supply and demand is so important. 
"However, I would advise, out of my national duty, a rational purchase of the US dollar as per necessary stuff only."
However, Ayman Mansour, an Egyptian financial expert, expected a jump in the price of so many goods, mainly the imported ones, because the Egyptian central bank would no longer provide hard currency for importers as usual.
"Considering the fact that most of the country goods and commodities are being imported, and the central bank has shrugged down the priority list of imports, the prices will be higher."
Dr Hisham Ibrahim, professor of financing and investment at Cairo University, said the pound floating is to give a big push to imports, particularly as Egyptian commercial chambers have already stopped the imports of unnecessary products three months back. "This will significantly decrease the demand for the US dollar," he added.
The Egyptian central bank, instructing lenders to remain open until 9pm, will give a chance to anyone who has dollars to approach the bank for a good exchange rate at a late hour.
"Though the exchange rates of the banks are so close, they are communicating to unify the exchange rate of the US dollar," he said. "Freeing the pound will eradicate the currency black market, considering that the banks are now offering a competitive rate."
Egyptian anchor Ahmed Wafiq, on his official Twitter account, said it is not a miracle for the US dollar to come down from 18 to just 13 in mere hours.
"It is a matter of government policies that need to change from an industrial to an agricultural country."
The Egyptian pound had been pegged at 8.8 to the US dollar since March, but a shortage of the hard currency in the economy had put it under an intense downward pressure over the last months.
A rapid slide on the black market to 18 earlier this week pushed importers to cease buying, with the rate strengthening to 13 by late on Wednesday, creating a rare opportunity for the central bank to devalue.
In a surprise announcement early on Thursday, the central bank said it had gone further than bankers expected to freely float the Egyptian pound, hiking interest rates by three per cent to rebalance currency markets following weeks of turbulence.
"The CBE hereby announces its decision to move, with immediate effect, to a liberalised exchange rate regime in order to quell any distortions in the domestic foreign currency market," it said in a statement.
"This move will allow market demand and supply dynamics to work effectively in order to create an environment of reliable and sustainable provision of foreign currency."
Bankers told Reuters they had been informed that the central bank would set an initial guidance rate of 13 pounds to the dollar and banks would initially be allowed to trade within a 10 per cent band above or below the new rate until an exceptional foreign exchange sale at 1pm (1100GMT).
After the results of the auction are announced the band would be removed, according to a central bank memo that was sent to banks earlier on Thursday and seen by Reuters.
The central bank said the new exchange rate was nonbinding and would serve as "soft guidance to jumpstart the market".
It was not clear how much foreign exchange would be offered at Thursday's exceptional sale.
The central bank also said in a statement that it would abolish the priority list for imports and that banks would be allowed to operate until 9pm every day, including weekends, for foreign exchange transactions and transfers only.
With inputs from Reuters
- ahmedshaaban@khaleejtimes.com