Egypt is grappling with its worst foreign-currency crunch in years and has recently seen the emergence of a black market for dollars. It secured a $3 billion loan from the International Monetary Fund and sought help from its wealthy Gulf Arab allies. 

Core inflation, the gauge used by the central bank that strips out volatile items, accelerated to 24.4% in December from 21.5% in November. 

This week the government said it would curb state spending, including through halting costly new infrastructure projects. The central bank announced in December it was targeting inflation at an average of 7%, plus or minus 2 percentage points by the fourth quarter of 2024.

Allen Sandeep, director of research at Naeem Holding in Cairo, has said the latest bout of depreciation sets the stage for a pickup in inflation to around 23%-25% and higher government borrowing costs. 

Eoin Treacy's view

Egypt is one of the largest food importers in the world. With a population now in excess of 100 million that is a major point of stress. The war in Ukraine threw food security into a state of flux and has contributed to the inflation spike.

Ukrainian wheat exports are at risk this year as planting will have been impacted by the war. That suggests Egyptian inflation will not come down quickly. With only mildly positive relative rates, the central bank may have to intervene more forcibly to rein in spending.

The government has long relied on the kindness of GCC countries to bail it out. That is not working as well any longer since countries like the UAE are now asking for assets in return for cash assistance. That might be the catalyst to force some real reform on this occasion.

The Hermes Index remains in an overall downtrend when redenominated to US Dollars.