Is the rising price of the dollar worrying?

While the increase in net foreign reserves is a positive sign indicating a buffer for the economy, the rise in the dollar price reflects stresses within the Egyptian economy, including a potential mismatch between the supply and demand for dollars, pressure on the local currency, inflationary risks, and challenges in monetary policy management. It's a situation that bears monitoring as it can have widespread effects on the economy and the population.

The rise in the dollar price in Egypt is a cause for concern for several reasons:

1. Rapid Depreciation: The sharp increase from LE42 to LE48 within a week suggests a rapid depreciation of the Egyptian pound. Such quick changes can lead to instability and uncertainty in the market.

2. Impact on Inflation: A weaker Egyptian pound means that imports become more expensive. Since Egypt imports various goods, including essential commodities, this can lead to an increase in inflation as the prices of goods and services rise.

3. Black Market Activity: The discrepancy between the official bank rate (LE31) and the rates quoted by websites (LE47 to LE48) indicates a significant demand for dollars that is not being met through official channels, leading to a flourishing black market. This can undermine the official financial system and may lead to further economic instability.

4. Monetary Policy Concerns: The Central Bank of Egypt’s limitations on dollar transactions and withdrawals abroad suggest tight control over foreign currency. These restrictions might be in response to a shortage in dollar liquidity, which can signal underlying economic issues.

5. Fuel and Energy Price Hikes: The government’s decision to raise gasoline prices by 14 percent, with further planned increases in fuel, energy, and transportation prices, will likely add to the inflationary pressures. This can decrease the purchasing power of the average Egyptian, leading to broader economic hardships for the population.

6. Pressure on Trade and Industry: As the exchange rate deteriorates, businesses that rely on imported materials may face increased costs, potentially leading to a slowdown in economic activity and causing market stagnation and crises as reported by Al-Sarf Al-Youm.

7. International Agreements: The agreement with the International Monetary Fund (IMF) suggests that the Egyptian government is under pressure to liberalize exchange rates and energy prices, which can lead to short-term economic hardship even if it may stabilize the economy in the long term.