Macro - FLOATATION AND MACRO CONSEQUENCES...
​In a long waited step, the CBE decided, to float the Egyptian Pound last Thursday by around 46.5%to reach EGP13/ USD with 10% up/down fixed band up from its official 8 months level of EGP8.88/USD. Yet, the free movement of the green paper at banks has pushed its value up to hit EGP 17 within 84 hours.
​The decision of floating the local currency was accompanied with raising the corridor rates by 300bps for lending and deposit overnight rates to reach 15.75% and 14.75%, respectively. In addition, the press release announced by the CBE that day has mentioned that the CBE has agreed with the Ministry of Finance to gradually phase out the monetary financing of budget deficit over the coming months, a decision that we see as a step towards fiscal and growth reforms to achieve the end targets of boosting economic growth and increasing the levels of employment. As this means that the crowding out effect of the government in disturbing the investment environment is to fade out, such that by lessening the borrowing of the government, this is to push interest rates downward and hence the government will gradually lift up its hands from national projects to give the lead to private investments to trigger growth in the medium and long run. This further supports our view that interest rates are to decrease by the end of the current fiscal year. Adding, this is a signal that government expenditures are to be squeezed aggressively in the short-medium run.
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