Mohamed El-Etreby, the head of Egypt’s Banks Federation, has recommended prudence amid an influx of hard currency into Egypt in hot money due to the Egyptian pound’s flotation and interest rate increases.
Last week, the Central Bank of Egypt (CBE) floated the pound against the dollar in the fourth local currency devaluation since early 2022.
The pound lost nearly 60 percent of its value against the US dollar, recording approximately EGP 49.4, down from its previous value of around EGP 30.9.
In TV comments on Saturday evening, El-Etreby praised the CBE’s decision as historic, noting that its outcomes were immediately observable.
“We witnessed an influx of foreign resources into the [Egyptian] banking sector from very large institutions in numbers that no one expected,” El-Etreby, chairman of state-owned Bank Misr, said.
He said the hard currency influx was a “positive” sign that meant a quick return of confidence in the Egyptian economy.
However, he urged caution “because part of the recent inflows is hot money.”
In recent years, Egypt has faced economic shocks caused by the sudden exodus of hot money, which is short-term, high-interest-rate investment certificates.
An estimated $20 billion in hot money left Egypt when the Russian-Ukraine war erupted in 2022.
El-Etreby praised the recent revision of Egypt’s future outlook by credit-rating company Moody’s from negative to positive, noting that this was the first time that the future outlook has jumped two steps at once, exceeding the stable level directly to the positive one.
On Thursday, Moody’s revised Egypt’s outlook to positive from negative amid the CBE’s game-changing economic measures while maintaining Egypt’s long-term foreign and local currency issuer ratings at Caa1.
Under Moody’s assessment, Caa1 is a “very high credit risk” bracket that indicates “poor standing and the vulnerability to very high credit risk.”
Over the past months, Egypt struggled with a hard currency crunch, leading to a steep fluctuation in the exchange rates between the official and the parallel markets.
The CBE said one of the main objectives of the pound flotation is to unify the exchange rates and eliminate parallel markets.
On Saturday, Egyptian President Abdel-Fattah El-Sisi said the large influx of hard currency – mainly from the Ras El-Hekma investment project and an expanded IMF loan – made adopting a flexible exchange rate possible.
