The Central Bank of Egypt (CBE) has stabilized the currency’s rate at EGP 8.78 against the US dollar at Tuesday’s regular foreign exchange auction, as stated by Reuters.

The decision of the CBE to sell $118.6 million out of the $120 million to local banks was prompted by the need for strategic and imported goods.

Yet this goes against the claim of CBE’s bank governor Tarek Amer in early July to move towards a more flexible exchange rate policy and introduce a second devaluation.

‘Personally, I would not be happy if the exchange rate is stable but factories are halted’ Amer informed Al Mal newspaper.

The previous devaluation in Egypt led to a troubling rate of inflation, reaching 12.37 per cent in June. Though there are still expectations for a second devaluation following the statement by two black market traders that they were selling the dollar at about 11.55 pounds.

Even though, economists see devaluation as inevitable, they still insist on the importance of timing if it plans to minimise inflation.

Inflation also grows from the other side as pressure from the IMF and World Bank in implementing the VAT and other fiscal charges are likely to increase prices. Yet Simon Kitchen, head of Macro-Strategy at EFG-Hermes, has told Reuters that before shifting to a flexible foreign exchange regime, Egypt ‘is likely to seek IMF support’.

Nevertheless the expectations of a growing economy, the conditions requested by the IMF and the devaluation of the pound are seen by economic analysts as triggers for higher inflation.

Copyright: Reuters.