The Egyptian pound (EGP) has crossed the 50 per USD mark for the first time, after the unexpected decision by the CBE to raise interest rates by 600 basis points in March 2024. With the Central Bank of Egypt (CBE) expected to hold rates over the rest of the year, what are the latest Egyptian Pound forecasts and price predictions for 2024 and beyond?
Due to receding FX risks and slowing inflation. the Central Bank of Egypt is expected to hold its overnight deposit and lending rates at 27.25% and 28.25% respectively until end-2024
Analysts forecast that the CBE will start its monetary policy easing cycle in 2025 as inflation will trend further down, from 29.0% in 2024 to 11.8% in 2025, ending the year around the CBE’s upper inflation target range of 9.0%.
Risks are skewed towards a cut in policy rates in Q4 2024 as real policy rate would have shifted to positive by then and to reduce borrowing cost to support the real economy.
Will Egypt weaken its pound further? What has been driving the value of the currency lower? In this article, we look at the currency’s recent performance and analysts’ latest Egyptian Pound (EGP) forecast and price predictions.
Egyptian Pound Forecast & Price Predictions – Key Takeaways
- Egyptian Pound forecast in the coming days: Analysts at ING forecast USD/EGP can now stabilise at the 50.00 mark before a gradual transition to a more free-floating exchange rate materialises.
- Egyptian Pound forecast for 2024: Oxford Economics predicted that the value of local currency will drop somewhere between 55/$ and 60/$ by the end of the year and such depreciation might help close the widening gap with the black market.
- Egyptian Pound forecast for 2025-2030: Analysts are not offering yet an Egyptian Pound forecast for the next year, but official said that the interior ministry would use an "iron fist" against traders who were channelling remittances outside the banking system.
Fundamental Egyptian Pound Forecast – CBE to Hold Rates in H2 2024
To combat inflation and strengthen the currency, the CBE has raised its benchmark policy rates by 1900 basis points (bps) since March 2022. The most recent increase was made by officials on March 6, the day they ununified the currency rate, by 600bps. Analysts agree with the CBE that the current level of policy restrictions is adequate to stabilize inflation expectations and lower inflation (see the chart below).
Fitch Solutions has lowered their end-year Egyptian Pound forecast from 30% to approximately 24% since inflation slowed down much more than anticipated in March and April. Given the significant fall of the currency, this might come as a surprise. The official exchange rate (EGP47.4/USD) is still significantly higher than the parallel market from before unification, on which many Egyptians were sourcing money (EGP75/USD in February), even though it is roughly 35% weaker than it was at the beginning of the year. For most consumers, the de facto exchange rate has strengthened while the official rate has weakened (see chart below).
In fact, from 11.4% in February to just 1% month-over-month in March and April, inflation decreased. Analysts believe that the FX reserves held by policymakers will be sufficient to maintain the value of the currency at EGP47.5/USD for the remainder of 2024, which will serve to stabilise inflation expectations in the upcoming months. Real policy rate support for the exchange rate and inflation will also come from this, which analysts anticipate will turn positive starting in September 2024.
Simultaneously, the reduction of import backlogs and enhanced foreign exchange availability at banks have lessened the pressure on prices driven by supply. For example, car prices, which had doubled in the previous year, are said to have decreased by 20% in March and April. Other administered prices will continue to control inflationary pressures, even though we expect the government to hike gasoline prices once or twice later this year to lower the subsidy bill and maintain compliance with the IMF program. Given that Egypt's food component accounts for 32.7% of the CPI basket, the primary driver of inflation, and that inflation is still well above the CBE target rate of 5%–9%, analysts forecast the Central Bank of Egypt will exercise caution when beginning its cycle of monetary policy easing in 2024.
However, based on the figure below, Fitch Solution forecast that the CBE will reduce its benchmark policy rates by 1200bps in 2025. Headline inflation will decrease despite ongoing increases in administered prices, particularly for gasoline and electricity, thanks to positive base effects. According to their projection, average inflation will end the year inside the CBE goal range, falling from 29.0% in 2024 to 11.8% in 2025. This will take place amid the backdrop of the world central banks loosening their monetary policy cycles and Egypt's policy rates continuing to be positive—all of which are favourable to the exchange rate. Also, they believe the CBE will continue its aggressive cycle of monetary policy easing to reduce interest payments, which account for over half of government revenue.
Source: CBE, BMI
There is a chance that the CBE will begin its cycle of monetary policy easing in Q4 2024 as opposed to 2025. If policymakers choose to put bolstering the real economy first, interest rate reductions are probably in store for later this year. Following the strong monetary policy tightening cycle in recent months and the reduction of subsidised lending schemes, borrowing costs increased, leading to a slowdown in lending activity (see the chart below).
Investment activity, which has been declining in real terms over the last few quarters, has been primarily impacted by this. In fact, our forecast for real GDP growth is just a slight improvement, rising from 3.2% in FY2023/24 (July 2023 – June 2024) to 4.2% in FY2024/25.
EGP weakens in challenging economic environment
Following the devaluation of 2016, which saw the USD/EGP exchange rate rise from 7.83 at the beginning of the year to 18.60 at the end, the value of the Egyptian pound versus the US dollar somewhat strengthened.
In 2022, the rate was 15.71. When the government depreciated the currency on March 22 in reaction to the conflict in Ukraine and growing inflation brought on by higher commodity prices, it shot up to 18.54.
As the state of the economy has gotten worse, the value of the pound has kept falling. In early August, the USD/EGP exchange rate crossed the 19-mark, and by the end of October, it had risen to 24.18. Smaller increases in the rate were sustained, and at year's end, it stood at 24.75. After that, it increased and reached 27.22 in the first few days of January.
As the state of the economy has gotten worse, the value of the pound has kept falling during 2023. The USD/EGP exchange started the year at 27.55, by the start of February it had risen to 30.23 and has remained around that mark right up until the start of April.
In October, the Central Bank of Egypt (CBE) continued to increase interest rates, this time by 200 basis points. The rates for overnight deposits, overnight loans, and the main operation were increased by 300 basis points to 16.25%, 17.25%, and 16.75%, respectively, on December 22nd, when the Monetary Policy Committee took another action.
In March 2023, the bank raised again its overnight interest rates by 200 basis points (bps), following a meeting of its Monetary Policy Committee (MPC), saying it aimed to bring high inflation into check.
The IMF Executive Board declared on December 16 that it has authorized a $3 billion loan to Egypt for a 46-month period under the Extended Fund Facility (EFF).
The package includes structural reforms to lessen the role of the state and promote growth in the private sector, as well as "a permanent shift to a flexible exchange rate regime to increase resilience against external shocks and to rebuild external buffers" and monetary policy targeted at gradually lowering inflation, moving away from lending schemes that provide subsidies, managing debt while raising social spending, and debt management.
After a two-week visit, an IMF team left Egypt on March 7, with the goal of coming to an agreement so that the $3 billion loan program's long-overdue first and second inspections of Egypt's economy could go forward. Ivanna Vladkova Hollar, the IMF Mission Chief for Egypt, reported that “excellent progress” had been made on important issues by her team and Egyptian officials. She also mentioned that further support from the IMF and other bilateral and multilateral partners is being investigated.
The Central Bank of Egypt (CBE) attempted to stabilize the already troubled economy at the beginning of March 2024 by implementing exchange rate flexibility, which lets market forces control the value of the Egyptian pound.
Additionally, the CBE increased interest rates by 600 basis points (6%), which was the second increase this year, according to a statement from the CBE.
As prices rose further, "the domestic economy has been recently weighed down by foreign exchange shortages, resulting in the existence of a parallel exchange rate market and constraining economic growth, as inflation continued to grow," the statement stated.
What is the outlook for the pound against other currencies for the rest of the year and beyond? Will it set new lows against the dollar or rebound?
Egyptian Pound Forecast – Technical
The Egyptian pound has been struggling against the US dollar for months, leading prices of essential commodities to hike, especially wheat, rice, sugar, and cooking oil, which has taken a toll on low and average-income households.
The pound fell beyond 50 against the dollar on Wednesday 6, after being officially held at about 31 to the dollar for almost a year while it reached more than twice that figure on the black market.
Looking at the USD/EGP chart below, each of the previous Egyptian Pound devaluations was followed by a consolidation, which marks the transition towards a more free-floating exchange rate. Due to this, the technical Egyptian Pound forecast is flat for the next months.
Egyptian Pound Price Predictions
Analysts forecast the Egyptian pound to remain vulnerable against the dollar in their EGP price predictions. While the floating of the currency will increase inflationary pressures and pressure consumption, it is expected to help address imbalances in the currency market.
Egyptian Pound Forecast from ING - USD/EGP can now stabilize at the 50.00 mark
ING analysts forecasted Egyptian Pound can now stabilize at the 50.00 mark before a gradual transition to a more free-floating exchange rate materializes.
Egypt's 600 bps rate hike and subsequent FX devaluation from the Egyptian central bank point to significant reform progress, with an improved IMF deal agreed following the recent announcement of investment from the UAE, said the Dutch bank.
Egyptian Pound Forecast from Oxford Economics – USD/EGP toward 55-60 mark
As Egypt still seeks a way out of its grinding foreign currency crunch, Oxford Economics has predicted Egyptian Pound will drop somewhere between 55/$ and 60/$ by the end of 2024 if regulators switch to a flexible exchange rate regime.
The Oxford-based think tank noted that such depreciation might help close the widening gap with the black market. Based on its forecasted Egyptian Pound exchange rate, Oxford Economics expects the annual inflation to peak in Q4 2024, reaching between 40% and 45%.
Egyptian Pound Forecast from Capital Economics – USD/EGP to reach 60-65 soon
London-based think tank, Capital Economics released a more pessimistic Egyptian Pound forecast before the central bank's decision, predicting the Egyptian pound to experience “an initial fall” to 60-65/$ if regulators embark on a devaluation soon.
Given Egypt has tightened fiscal policy with price hikes and an announced 15% cut to investment spending this year, all eyes are on what happens to the pound, explained the analysts from Capital Economics.
Egyptian Pound Forecast from Trading Economics – USD/EGP to reach 58 soon
The Egyptian Pound is forecasted to trade at 51.52 by the end of this quarter, according to Trading Economics' global macro models and analysts' expectations. Looking forward, the Egyptian Pound forecast for the next 12 months is to trade at 58.00 against the US Dollar.
This AI-based Egyptian Pound forecast for 2024 is bearish for the EGP, pointing toward a continuation after the latest devaluation. However, AI-based predictions should be taken with a grain of salt.
Other Forecasts and Price Predictions
Final words on the Egyptian Pound Forecast
If you are looking for an Egyptian pound forecast to inform your foreign exchange trading, keep in mind that analysts and algorithm-based predictions can be wrong. You should not use Egyptian pound forecasts as a substitute for your own research. Always conduct your own due diligence, looking at the latest news, fundamental and technical analysis, and analyst commentary.
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Sources:
- https://www.cbe.org.eg/en/news-publications/news/2024/03/06/05/42/special-mpc-press-release-6-march-2024
- https://www.imf.org/en/News/Articles/2024/03/06/pr-2459-egypt-staff-and-authorities-reach-agreement-on-reviews-under-the-eff-arrangement
- https://www.tradingview.com/symbols/EGPUSD/