Question

In: Economics

I need a really detailed answer Egyptian Pound went through some volatility since it was floated...

I need a really detailed answer

Egyptian Pound went through some volatility since it was floated in November 2016 until today. This could be broken down in 4 main phases as follows:

Phase 1: From floatation till June 2018

Phase 2: From June 2018 - December 2018

Phase 3: From January 2019 - February 2020

Phase 4: Coronavirus worldwide outbreak

what happened during each of the above 4 phases and in full details how these factors impacted the EGP exchange rate versus the Dollar?

Solutions

Expert Solution

Egyptian pound was devalued in 2016 and in the first phase several steps were introduced by the central bank of Egypt in April 2018, to stop it from depreciating further against the dollar, by reducing interest rates which will drive up investments in the economy.

Phase 2: June 2018 - December 2018: Forex reserves increased to $44bn in November 2018. Thus stabilising the currency. Reduced import bill due to decline in oil prices and attractiveness of the interest rate on the pound helped in keeping the currency stable. CBE terminated the repatriation mechanism which led to increase in dollar supply to banks, which enhanced the EGP value against the dollar.

Phase 3: January 2019 - February 2020: Foreign exchange reserves helped in appreciation of the currency. Investment flows also led to the appreciation. Trade balance helped in the pound moving towards 15.6 per dollar, thus appreciating because of lower imports and higher exports. FDI increase and remittances from abroad also favoured the currency.

Phase 4: Coronavirus worldwide outbreak: In light of the outbreak, the currency depreciated slightly to 15.7 against the dollar as foreign flows moderated and tourism slackened. Investors also moved out from major emerging economies, which could further depreciate the currency going ahead.


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