Goldman Sachs predicts EGP recovery in early 2025

Updated 12/12/2024 3:05:00 PM

Arab Finance: Goldman Sachs Group anticipates a rebound in the Egyptian pound in early 2025, following its sharp decline to a record low of EGP 50.8 against the USD in the offshore market this week.

The currency's recent fall, attributed to heightened seasonal portfolio flows, underscores the challenges facing Egypt’s financial markets, the group said.

The EGP’s drop marks a continuation of depreciation trends seen over the past six weeks, as per Goldman Sachs.

These declines come after prolonged periods of exchange rate stability following a series of devaluations by Egyptian authorities, the most recent occurring in March 2024.

Since early 2022, the currency has been devalued four times in an effort to stabilize the economy.

Farouk Soussa, an economist specializing in the Middle East and North Africa at Goldman Sachs, explained that the December slide stemmed from a significant surge in redemptions of short-term treasury bills issued earlier this year.

Many investors sought to book year-end profits, reducing their positions and prompting a decrease in rollover rates. Soussa also noted that Egypt’s finance ministry has been hesitant to raise yields at recent auctions to maintain lower borrowing costs, a factor contributing to the market shifts.

Looking ahead, Soussa expects the Central Bank of Egypt (CBE) to begin easing interest rates in the first quarter of 2025, transitioning from their current record-high levels.

This policy shift is likely to spur larger treasury bond issuances with various maturities, including long-term instruments, creating opportunities for investors to re-enter the local market. Such activity is expected to bolster the Egyptian pound.

The economist also highlighted a significant overshoot in the pound’s devaluation last March that has not yet been corrected, suggesting room for recovery.