Egypt’s currency drop barely closes gap with black market rate

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The Egyptian currency slid to a new record but remains far stronger than rates quoted in the black market, underscoring the risk of further depreciation as the North African nation grapples with a foreign-exchange crunch.

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Bucking the strength of its peers in emerging markets, the pound extended last week’s devaluation of 9 percent and fell 1.6 percent as of 4:22 p.m. in Cairo on Monday. It traded near 27.6 per dollar, compared with the parallel exchange rate of around 31, according to traders.

Egypt has struggled to narrow the gap between the pound’s black-market and official rates even after the currency’s third devaluation since March. Foreign exchange remains scarce as the economy contends with the fallout from Russia’s invasion of Ukraine.

“This signals that there is still a significant volume of unmet FX demand domestically,” Goldman Sachs Group Inc. analysts including Kamakshya Trivedi said in a report.

For now, Egypt’s latest policy moves may have also “failed to restore confidence in the currency, a key ingredient to close the loop between deteriorating FX and inflation expectations,” the Goldman analysts said.

Egypt needs to unlock more financing from abroad as it tries to clear the logjam of imports at its ports that’s adding to a backlog of unfulfilled demand for dollars. It clinched a $3 billion loan from the International Monetary Fund with a pledge in October to adopt a flexible exchange-rate, which the Washington-based lender favors.

The IMF will hold a virtual briefing on Tuesday to discuss the release of its staff report and documents related to its fund program for Egypt.

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