The US dollar has continued its depreciation against the Egyptian pound (EGP) in the parallel market, the daily Al Sharq Business reported.

As of February 6, 2024, the US dollar traded at around EGP51 in the parallel market, down from a recent peak of EGP72. However, the official exchange rate remains stable at EGP30.96 for buying and EGP30.95 for selling, creating a significant gap between the official and parallel rates.

Oxford Economics said the plunge was fuelled mainly by speculation, not by the forces of demand and supply. The consultancy group said in a report published on February 5 that it expected the EGP to reach 55-60 to the dollar in banks by the end of 2024, as the central bank moves to a flexible exchange rate to attract foreign investments and maintain macroeconomic stability.

Oxford also expected annual headline inflation to peak in Q4 2024 at 40-45% from 33.7% in December 2023 on increased electricity and mobile phone charges. 

Other consultancies, such as Capital Economics, believe the EGP will drop further to 65 against the dollar by the end of 2024. In early February, S&P Global Ratings said it expects the Central Bank of Egypt (CBE) to devalue the EGP to half its current official value to secure the IMF loan package. Morgan Stanley also anticipated a devalued EGP in 2024. 

Egypt is close to securing as much as a $12bn financial package from the IMF and other external partners. The IMF previously called on the Egyptian government to close the gap between the official and parallel market by devaluating the local currency as a step to address problems related to the foreign exchange system. The CBE applied three waves of devaluation of the local currency since March 2022, and a fourth wave is on its way.

On February 1, the CBE raised key interest rates by 2% (200 bps) in a bid to rein in the persistently high inflation.

Since February 2022, Egypt has struggled with a hard currency crunch driven by geopolitical tensions, a global supply chain crisis and US interest rate hikes, which absorbed tens of billions of dollars in hot money from the local market.