The Egyptian pound has appreciated significantly since the devaluation in 2016 and there are signs that the strength of the currency is weighing on the country’s external competitiveness. We forecast a gradual depreciation from around 15.6/$ now to 17/$ by the end of next year, which is a larger fall than most expect. But there is a risk that policymakers have not learnt from their past mistakes and support an overvalued exchange rate for too long, leading to a sharper adjustment further down the line.
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