The Central Bank of Egypt (CBE) has announced certain initiatives in order to alleviate the country’s tough financial situation, specifically in view of the currency shortage. Among many troubles, the mentioned issues have been weighing on Egypt’s steel sector imports, primarily in the raw material, billet and flats segments. However, market players are mainly skeptical that the incentives will help ease the currency situation significantly, although some sources expect a certain revival in imports, particularly from Russia.
In order to regulate the currency issue, the CBE announced it is moving to a more flexible exchange rate regime. As for import payments, it was decided to allow businesses to gradually stop using the LC payment procedure, which was announced as a mandatory procedure in early 2022. The process of LC removal will be completed by December 2022. The CBE expects the incentive to “serve as a catalyst for the rejuvenation of economic activity in the medium term.” In addition, the institution intends to work towards building a foundation for a derivatives market, which is foreseen to help stabilize the currency situation.
The steel market players are mainly cautious in their evaluations regarding the effectiveness of these measures and their ability to support business. The domestic sources report there is still no availability of foreign currency and expect that maybe in a few days the situation will be clearer and they will see whether the US dollar will be available or not. Others expect that the cancellation of the mandatory LC payment system may boost the import trade, particularly for billets. “[It] means Egypt will be back to the CAD system, which is a risky game for traders,” a source said. “Overall, Russia and Iran may be able to sell some more cargoes in theory but traders should be careful,” another trading source told SteelOrbis.
In line with the CBE initiative, Egypt’s Monetary Policy Committee has decided to increase its overnight deposit rate, the overnight lending rate and the rate of main operations by 200 basis points to 13.25 percent, 14.25 percent, and 13.75 percent, respectively.