{"id":614958,"date":"2024-02-11T00:00:00","date_gmt":"2024-02-11T00:00:00","guid":{"rendered":"https:\/\/enterpriseam.com\/egypt\/2024\/02\/11\/goldman-sachs-calls-for-egypt-to-build-liquidity-buffers-and-curb-fx-demand-before-devaluation\/"},"modified":"2024-02-11T00:00:00","modified_gmt":"2024-02-11T00:00:00","slug":"goldman-sachs-calls-for-egypt-to-build-liquidity-buffers-and-curb-fx-demand-before-devaluation","status":"publish","type":"post","link":"https:\/\/enterpriseam.com\/egypt\/2024\/02\/11\/goldman-sachs-calls-for-egypt-to-build-liquidity-buffers-and-curb-fx-demand-before-devaluation\/","title":{"rendered":"Goldman Sachs calls for Egypt to build liquidity buffers and curb FX demand before devaluation"},"content":{"rendered":"

We\u2019re not ready for a devaluation, Goldman Sachs says: <\/strong>Under current conditions, it is unlikely that a managed devaluation would the Madbouly government\u2019s policy objectives, according to a Goldman Sachs report seen by Enterprise. <\/p>\n

What is cabinet aiming to do? <\/strong>Unify the parallel and official exchange rates, ensure medium-term FX stability EGP, and do it all with as little devaluation as possible. That\u2019s unlikely to happen without further policy tightening and a bigger war chest of FX ahead of a devaluation, the bank said in the report.<\/p>\n

The conditions we\u2019re missing: <\/strong>Demand for FX in Egypt must be in line with anticipated supply inflows following a devaluation \u2014 and the system will need enough cash on hand to ensure FX needs can be met by allowing the official FX rate to adjust. <\/p>\n

Goldman Sachs believes that demand for foreign currency remains \u201chigh and inconsistent with an official FX clearing rate,\u201d<\/strong> making it difficult for the central bank to choke out the black market without deeper devaluation (or a full float) of the EGP. On top of this, GS thinks the banking sector lacks the FX liquidity it needs to close the gap amid a high FX backlog and much of the country\u2019s FX inflows going through unofficial channels.<\/p>\n

Goldman doesn\u2019t see a full float taking place: <\/strong>The bank sees policymakers continuing to manage the official exchange rate, but possibly with more flexibility than has been the case in recent years. The report\u2019s author, Goldman MENA economist Farouk Soussa, attributes the conservative approach to the state\u2019s concerns about the exchange rate overshooting and the possibility of an even more volatile exchange rate than the parallel market in the event of a full float. <\/p>\n

What do we need to do next?<\/strong> Act now to \u201cto curb FX demand and build liquidity buffers ahead of any prospective attempt to clear the market through a devaluation of the official FX rate.\u201d Specifically:<\/p>\n