The dollar exceeds 27 pounds.. The decline of the Egyptian currency reflects on the stock market

Cairo, Egypt - The price of the Egyptian pound continued to decline against the US dollar and foreign currencies on Thursday, reaching a price of 27.07 pounds for buying and 27.16 pounds for selling according to data from the Central Bank of Egypt. Experts attributed the decline of the pound once again to the Central Bank adopting a sustainable flexible exchange rate system, in accordance with the International Monetary Fund, and the currency price difference contributed to the Egyptian stock market achieving record levels in local currency, both in terms of market capitalization exceeding one trillion pounds for the first time in its history and the increase in the number of executed transactions to more than 115,000 transactions for the first time.

With the start of trading on Wednesday, the price of the pound fell by 7% against the dollar, and the National Bank of Egypt and Banque Misr launched new one-year savings certificates with an interest rate of 25% paid at the end of the certificate period or a return of 22.5% paid monthly, starting from January 4. Aya Zuhair, head of the research department at Zila Capital Financial Consulting, attributed the decline in the exchange rate of the Egyptian pound against the dollar to the Central Bank of Egypt adopting a sustainable flexible exchange rate system in line with the requirements of the International Monetary Fund, stating that it is a logical and expected decision aimed at eliminating the parallel dollar market, with the government banks, National Bank and Banque Misr, offering high-yield savings certificates to attract citizens' savings and limit the expected increase in inflation during the upcoming period, in addition to the possibility of gradually adjusting fuel prices in the near future and increasing interest rates in the last meeting of the Central Bank last month.

The automatic pricing committee for petroleum products will hold its first meeting in 2023 during the first week of January to determine the prices of petroleum products based on global oil price movements and the exchange rate of the pound against foreign currencies during the three months preceding the meeting. Aya Zuhair stated in remarks to Afaq News in Arabic that "the fair price for the dollar ranges between 25-28 pounds," expecting that the price of the pound will continue to decline in the upcoming period until it stabilizes at the "fair price," regardless of the movements of the dollar price in the parallel market, pointing out the necessity for the Central Bank to provide dollar liquidity following its decision to abolish the documentary credit system in financing import operations.

The Central Bank of Egypt had previously issued a decision on December 29 of last year to cancel the use of documentary credits for carrying out import operations, which it had implemented since March to rationalize imports in light of the dollar shortage. Aya Zuhair explained the impact of offering high-yield savings certificates on the performance of the Egyptian economy, stating that 2023 is expected to witness a global economic contraction, which will affect the expansions of companies not only locally but also globally. Therefore, the issuance of savings certificates will not significantly impact an already contracting economy.

The net international reserves of the Central Bank of Egypt rose to $34 billion by the end of December 2022, an increase of $500 million from the previous November, according to Central Bank data. For his part, financial markets expert Wael Anba stated that the adjustment of the pound's exchange rate against the dollar led to the Egyptian stock market reaching record levels during the sessions on Wednesday and Thursday, reflecting the decline in the value of the pound against the dollar, with the main index of the stock market exceeding 16,000 points.

The market capitalization also achieved the highest market value and the highest yield on savings certificates in history at 25%, as well as the highest dollar price against the pound exceeding 27 pounds. According to stock market data, the market capitalization of the Egyptian stock market rose to achieve its highest value in history during the trading session on Wednesday, reaching 1.013 trillion pounds, surpassing the previous highest level of 1.008 trillion pounds in April 2018. The session also witnessed the execution of the highest number of transactions in the stock market's history, totaling 115.6 thousand transactions.

Anba downplayed, in statements to Afaq News in Arabic, the impact of issuing high-yield savings certificates on the performance of the Egyptian stock market in the upcoming period, explaining that the savings certificates aim to attract dollar holders who have dollar accounts or dollar speculators to convert them to pounds and purchase savings certificates, in order to attract dollar liquidity. He pointed out the importance of allowing foreigners to purchase these certificates, which would help attract more dollars, especially since the yield on these certificates is tax-exempt, while treasury bills and bonds are subject to a 20% tax. According to a statement from the National Bank of Egypt, the bank aims to issue the new savings certificates to both Egyptians and foreigners.

Wael Anba predicted that the government banks, National Bank and Bank of Egypt, would stop issuing savings certificates within two or three weeks at most; due to their success in attracting the targeted proceeds from these certificates, especially since the two banks have halted lending on old savings certificates to ensure attracting liquidity from outside the banking system.