Nadine Awadalla and Patrick Werr

CAIRO, Reuters -Egypt’s pound declined more than 11% after weeks of pressure. This was because foreign investors pulled billions from Egyptian treasury and markets in the wake of Russia’s invasion.

After trading at 15.7 Pounds to the Dollar since November 2020, the pound fell to 17.72-17.82, according to Refinitiv Data.

In surprise monetary policy meetings, the central banks also raised overnight rates by 100 basis point.

According to people familiar with negotiations, Egypt was in contact with the International Monetary Fund for possible assistance. But, the request has yet not been made.

JP Morgan’s investment bank analysts stated that the pound is 15% too high and that a devaluation of it was probable. Additionally, they suggested that Egypt could need IMF support if there are more financial market pressures.

According to Farouk Sussa, senior economist at Goldman Sachs (NYSE):, Monday’s weakness of the pound might lead to inflows of foreign currencies. Investors who have money in Egyptian treasuries are unlikely now.

He stated that “the move is intended to trap liquidity in market and draw in investors who might have been waiting for the pence to bottom out.”

It would likely increase inflation and local dollarization. He said that the big question was whether or not this amount is sufficient to attract portfolio investors.

HIGHER WHEAT IMAGING PRICES

According to bankers, Egyptian ports were blocked due to a shortage of dollars. Importers had difficulty obtaining foreign currency to pay for their letters of credit.

Egypt has been hit hard by the war in Ukraine, which means that it is now paying more for large amounts of wheat imports and losing tourism revenues from Russian and Ukrainian tourists to Red Sea resorts. Russia and Ukraine supply the majority of Egypt’s wheat imports, making them the largest suppliers.

A study by the International Food Policy Research Institute last week found that higher wheat prices would nearly double the annual state spend on wheat imports, to $5.7 Billion. It is straining public finances and increasing inflation pressure.

Inflation headline has surged to 8.8%, the highest in almost three years. It surpassed the 5-9% threshold set by the central bank last month.

According to his office, Prime Minister Moustafa Mabouly fixed Monday’s price for unsubsidised bread at 11.5 Egyptian Pounds ($0.66)/kg. Due to disruptions in wheat imports due to Russia’s invasion of Ukraine, prices have risen as high as 25%

For its rate hike, the central bank used global inflationary pressures exacerbated by the conflict in Ukraine to justify the increase in rates. The overnight lending rate was raised to 10.25% while the overnight deposit rate was raised to 9.25%.

The Egyptian National Bank and Banque Misr, both state-owned banks in Egypt, announced Monday that they are offering deposit certificates with a yield of 18%.