The indicators – or the signals – below are easy to follow on a daily or monthly basis, and they often indicate signs of an upcoming decline in the EGP’s exchange rate against the dollar, several weeks before the actual decline.
Most of these signs were evident in the crises of 2003-2016-2022, which shows that its probability of anticipating events is high, especially since the decision maker in Egypt does not allow the exchange rate to be moved until a long period of pressure appears, which acts as an opportunity to manage the crisis.
5 indicators
1. The sharp decline in net foreign assets/liabilities in the banking sector.
The continuous and rapid decline in net assets or the shift from net foreign assets to net foreign liabilities means the intervention of banks and the central bank to bridge the financing gap in the balance of payments.
And when the banks and the Central Bank intervene to bridge the gap, this means the lack of other financing resources such as the FDI and hot money and the growing size of the financing gap.
2. The return on dollar bonds in the secondary market has risen sharply, and this means foreign investors are worried the country could fail to pay its foreign currency obligations.
3. The rapid and unexpected rise in the interbank lending rate in the EGP due to a lack of liquidity.
This often happens in the early stages of the crisis as a result of the rapid exit by foreign investors from Egypt, which prompts the banks to sell liquidity in EGP to the CBE to obtain dollars to fill the exit requests.
This process leads to a sudden shortage in the interbank market, as in January 2022.
4. Intense and daily selling from foreign investors in the stock market, and this has been very clear since the beginning of the year.
5. The widening of the difference between the official exchange rate and the exchange rate deduced from the CIB share price in the local market in EGP and the price of the GDR document in the London market in USD.
As a result of investors scrambling to obtain the dollar outside Egypt by buying the stock in Egypt and selling it in London, the stock rises in Egypt and falls in London.
