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Is the Egyptian Pound Set for More Devaluation?

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IMF to lend $12 billion to fix Egypt’s economy

The IMF (International Monetary Fund) announced that it would be lending $12 billion to help revive the Egyptian economy and help the central bank stabilize the Egyptian pound. The lending is pending approval from the IMF’s executive committee. The Central Bank of Egypt is facing multiple issues in terms of inflation, budget deficit, and dwindling foreign exchange reserves. The lending from the IMF is expected to spur other investments in the Egyptian economy.

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Is the Egyptian pound set for more devaluations?

The US dollar-Egyptian pound currency pair is pegged by the Central Bank of Egypt. The central bank has done multiple devaluations to the currency as it tries to manage its foreign currency reserves. The last of the major devaluations happened at the beginning of 2016. With the IMF providing funds to Egypt, markets will likely expect more devaluation since the IMF always wants countries to have a floating currency system. Since the Egyptian economy isn’t ready to assimilate a floating currency, the odds of more devaluation will rise.

For more details on the devaluation, read Central Bank Devalues Egyptian Pound amid Foreign Fund Shortage.

Impact on the market

The iShares MSCI South Africa ETF (EZA) rose by 0.44% on August 11, 2016. The VanEck Vectors Egypt ETF (EGPT) fell by 2.1%.

The South African mining ADRs (American depositary receipts) were trading on a negative note. AngloGold Ashanti (AU) fell by 0.72%, while Sibanye Gold (SBGL) fell by 3.7%. Sasol (SSL) and Gold Fields (GFI) were on a contrasting trajectory. The former rose by 3.4%, while the latter fell by 0.62%

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