Egypt’s largest asset management firm Beltone Financial saidit is likely the pound will be floated imminently, based on warning signs from President Abdel Fattah al-Sisi’s Monday address.
The firm said the president’s speech signaled the government is preparing to float Egypt’s currency, as Sisi stressed government assistance would be given to ensure the supply of basic food items at affordable prices regardless of the exchange rate.
Beltone Financial suggested the president is also preparing for domestic unrest, as he stated that military forces could be deployed nationwide within six hours. “The presidency and the government are on a state of maximum alert, which implies that financial exchange action is indeed imminent,” the company said in a statement Monday.
Sisi strongly defended the Armed Forces: “During the past two months there has been a really vicious attack on the state and the Armed Forces. What does this mean? What does this mean? This is your army, your army, not my army. Egypt’s army is no one else’s. Does anyone doubt this? Does anyone doubt this?”
Floatation means the exchange rate will fluctuate in relation to other foreign currencies. Currently Egypt controls the exchange rate of the pound through a managed float. This means the Central Bank intervenes through market mechanisms to adjust foreign exchange rates without directly fixing them. This can happen through pumping or buying currency from the market to raise or lower the exchange rate.
If the Egyptian pound floats it will likely cause even higher rates of inflation, which will lead to increasing prices at a time when many Egyptians are already struggling to make ends meet.
The Egyptian pound’s value has plummeted against the dollar over the past year. Shortages in foreign currency have made it difficult for many businesses to pay for imported goods, resulting in the scarcity of several basic commodities.
Beltone Financial released an alert on September 19 claiming the Egyptian pound would most likely float before October 6. The alert cited statements by Egypt’s finance minister, in which he noted that the International Monetary Fund’s executive board would meet to approve Egypt’s US$12 billion loan within three weeks.
“When a country floats its national currency, it provides an “implicit guarantee” to creditors that it will not squander the money in defending a “specific rate,” Beltone Financial explained.
The firm said that it is likely that financial exchange reform, in particular the floating of the pound, is a pre-requisite for IMF funds.