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The Egyptian pound plunged to a record low on Wednesday, heading for its biggest slump since the aftermath of the North African nation’s devaluation in late October.
The currency has remained under pressure as Egypt faces its worst foreign-exchange crunch in half a decade. It slid 5% to 26.1 per dollar in the offshore market as of 12:40 p.m. in Cairo, according to data compiled by Bloomberg.
Egypt devalued its currency twice in 2022, with a pledge in October to adopt a flexible exchange-rate policy, eventually helping the country clinch a $3 billion loan from the International Monetary Fund.
The country’s allies in the Persian Gulf have also pledged more than $20 billion in deposits and investments as the economy grapples with the fallout from Russia’s invasion of Ukraine.
Egypt’s central bank last week revoked a requirement for importers to secure letters of credit, a rule that had been blamed for a massive backlog at ports. The country needs to clear a backlog of requests from importers and companies — estimated at over $5 billion — to access hard currency, a move that could add pressure on the pound.
The pound’s depreciation followed a massive rate hike at the end of last year and what officials have said is progress in clearing the logjam of imports at its harbors. Analysts had said that for the devaluation to bear fruit and some balance to return to the market, the government would need to ensure that it had enough foreign currency liquidity to effectively meet demand and stamp out the parallel exchange market.
“We’ll have to wait and see” to monitor the level of FX liquidity in the interbank market, said Mohamed Abu Basha, head of macroeconomic research at Egyptian investment bank EFG Hermes. “The rate at which the market clears backlogs and meets new demand after lifting the LC requirement will be key.”
In the offshore market, derivatives traders have stepped up bets that the pound will additionally depreciate past 32 per dollar in the next 12 months.
The currency tumbled 15% on 27 October, the same day authorities said they’d adopted a flexible exchange-rate regime, helping seal the IMF agreement. It fell another 4.4% on 31 October.