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The Egyptian pound continues to decline in the parallel market ahead of the IMF meeting

The gap between the official exchange rate of the Egyptian pound against the dollar and its price in the parallel market has widened, putting pressure on Egypt in ahead of an important International Monetary Fund board meeting next week.

The shortage of hard currency persists in Egypt despite the devaluation of the Egyptian pound twice quest’year.

On December 16, the IMF is expected to take in consider Egypt’s request for $3 billion in expanded funding to help shore up its public finances. Egypt and the Fund announced agreement on the financing package on 27 October at the expert level.

Ahmed Kujuk, assistant finance minister, said Wednesday he expects the IMF board to approve the package at its meeting.

When Egypt announced the expert-level deal, it said it had moved to “a flexible exchange rate system in permanently, which leaves supply and demand factors to determine the value of the Egyptian pound against other foreign currencies”.

In a statement released by the Council of Ministers today, Friday, Kujouk confirmed that the agreement with the IMF aims to achieve a flexible exchange rate.

Black market traders sell dollars at £32 and £33, compared with the official rate of around £24.6 to the dollar.

The widening gap between the official exchange rate and the parallel market rate has prompted many analysts to say that Egypt could bring the pound down again before the IMF meeting and could also raise interest rates.

“We think we will see another cut or adjustment, but we do not expect a cut to the 32-34 level as suggested by the London Stock Exchange or the black market,” said Jap Meagher of Arqaam Capital.

The pound fell 14.5% against the dollar on October 27. Since the beginning of November, the central bank has allowed the official rate to fall gradually, with a media about £0.01 a day.

A number of analysts said the pound has weakened enough in based on their various fair value models, but that an adjustment period may be needed to resolve the import backlog and restore confidence.

“The latest devaluation brought it down to fair value,” said Charles Robertson of Renaissance Capital.

Egypt’s Finance Ministry predicted that the period of rising inflation following the shift to exchange rate flexibility would be short, saying this is what happened in the wake of the previous wave of exchange rate liberalization in November 2016 .

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