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BCA Research: Egyptian currency devaluation is imminent

The world remains focused on the unfolding political process in Egypt, but the nation’s currency is teetering on the edge of a substantial devaluation, says BCA Research, one of the world’s leading independent providers of global investment research.

Egypt’s trade and current account deficits were historically financed by foreign capital flows but, since the revolution, foreign flows have reversed.

Egypt: devaluation imminent 

Harvinder Kalirai, chief strategist at BCA, says not only are net portfolio flows now negative but the foreign direct investment balance has also dipped into negative territory.

“For some time, the Egyptian authorities have artificially supported the exchange rate but their ability and resources to continue to do so have diminished,” he says.

“Foreign exchange reserves have been run down by two-thirds since 2011 and policymakers can no longer support the currency at current levels.”

Kalirai says international reserves now cover less than two months’ worth of imports.

“Hence, the authorities’ manoeuvring room on the exchange rate is rapidly closing,” he says.

BCA Research expects a 20-25% depreciation to take place in the next three to six months.

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