Economy

Egypt remittances up by $3bn as inflation continues to drop

August 8, 2024, 11:15 AM

Egyptians buy subsidised food commodities in Cairo. Consumer goods prices fell slightly in July

Rates predicted to fall to 12.3%
Peaked at 38% in September
Remittances grew 63% in Q2

Inflation in Egypt fell to its lowest level since 2022 in July, while remittances, the country’s largest source of foreign currency, surged in recent months.

According to figures released by state statistics agency Capmas on Thursday, annual urban consumer prices grew by 25.7 percent in July, compared to 27.5 percent in June, a steeper drop than anticipated in a Reuters poll released the day before.

The Central Bank of Egypt (CBE) decided to maintain record-high interest rates on July 18.

Since March it has held the overnight deposit rate at 27.25 percent and its lending rate at 28.25 percent.

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Fitch Ratings predicts inflation rates will fall to 12.3 percent by the end of this financial year.

Inflation – which peaked at 38 percent in September – has been falling since March, when the Egyptian pound slid 36 percent against the US dollar, closing the gap between a diverging official exchange rate and a black market rate.

Long-running discrepancies in the exchange rate exacerbated a foreign liquidity crisis. It stifled businesses and importers, causing remittances to drop by 30 percent in 2023 compared to the previous year.

On Wednesday the CBE announced that remittances grew 63 percent in the second quarter of 2024 compared to that of 2023, following the float in March. Total remittances flowing through formal banking channels between April and June reached $7.5 billion, compared to $4.6 billion the previous year.

The CBE announced the country’s highest ever foreign reserves of $46.5 billion in July, up from $46.4 billion in June. The rise was driven by a 25-fold increase in special drawing rights (SDRs), disbursed to the state as part of an $8 billion International Monetary Fund extended fund facility agreed in March.

Special drawing rights are a form of international money, created by the IMF, and defined as a weighted average of various convertible currencies.

On July 30 the fund completed a third review of the programme, making a further $820 million in SDRs available to Egypt.

According to projections from Fitch Ratings, foreign reserves are likely to hit $49.7 billion during the current fiscal year and rise to $53.3 billion in 2025-26.