The firm also shared that it expects Egypt and the International Monetary Fund (IMF) will finalize a new agreement for its $3 billion loan during the first half of 2024, leading to an adjustment of the EGP and tightening of monetary policy
Financial firm JP Morgan has forecasted that the Egyptian pound will land at EGP 45-50 per dollar in a future devaluation, noting that the recent news of fresh foreign currency inflows into Egypt will help stabilize the pound and lower the black market exchange rate.
In a recent research note, JP Morgan added that any further currency adjustment will be accompanied by an increase in deposit interest rates by an additional 2%. The Central Bank of Egypt (CBE) recently raised key interest rates by 2%, citing ongoing trade disruptions in the Red Sea and an uncertain inflation outlook.
The firm also shared that it expects Egypt and the International Monetary Fund (IMF) will finalize a new agreement for its $3 billion loan during the first half of 2024, leading to an adjustment of the EGP and tightening of monetary policy.
“Adjustments in foreign exchange rates will be crucial to completing the agreement with the IMF,” JP Morgan highlighted.
According to the note, the financial firm believes that Egypt and the IMF could come to a staff-level agreement within the coming weeks, with approval from the IMF Board of Directors for the first and second reviews to come around March.
JP Morgan suggested that concerns about regional geopolitical stability may have encouraged the IMF to adopt a softer stance in recent weeks, but will stay firm to the basic pillars of the IMF $3 billion loan program.
Citing an IMF statement, JP Morgan highlighted Egypt’s growing financing gap driven by recent external shocks, including a decline in revenues from the Suez Canal due to security concerns. JP Morgan estimated that Egypt has lost around $800 million in the past two months due to the Houthi attacks in the Red Sea.
JP Morgan predicts that the CBE will commit to securing further foreign currency and closing the gap between the official and black market foreign exchange rates prior to establishing a new exchange rate policy.
