The markets are closed, Wall-E is opening in theatres, and by now most people have at least a foot out the door for the weekend. After writing all week about the USD, the Fed, and about how I am a better forecaster of market movements than my colleague John, I have decided to do the second piece in the Random Country Report Series. Excluding Antarctica and its rather inactive central bank (please see below), the continent with the least amount of coverage in the world of foreign exchange is Africa. So today let’s examine a country known for its history, architecture, and lamb kabobs: Egypt.
Egypt has come a long way from the time of the pharos and the pyramids, being one of the first — and longest lasting — republics in the Muslim world. Its currency is the Egyptian Pound (EGP), which is currently trading at 5.35 EGP to 1 US Dollar and 8.4479 EGP to 1 GBP. Today the Central Bank of Egypt raised interest rates to 10.5%, and unlike many of the major banks around the world, promised to actively combat inflation. If necessary, the CBE promised to bring rates even higher in the future should price stability (inflation) continue to be a problem.
The US Federal Reserve, along with other prominent central banks, is confronting the problem of simultaneously rising costs and slowing growth. As a result, it left rates unchanged the other day. Fortunately for Egypt, however, growth has not been a problem. In fact, the Egyptian economy is expected to expand more in this year than in 2008. As a result, the CBE has what would be seen as a gift by many other central banks: the chance to fight inflation without worrying about growth.
There are, of course, some problems in the Egyptian economy. Inflation is right under 20%, yet this problem is at the forefront of the CBE’s conscience. Many Egyptians also live with a low standard of living — a problem that the government has not yet been able to fully remedy despite recent moves such as wage increases. Another area of worry is rising food costs, as Egypt is the worlds’ second leading wheat importer due to their inability to grow the crop in the bleak Sahara Desert. As commodity prices continue to rise, Egypt should become concerned about their need to import so much wheat.
Still, in all, the outlook seems solid for Egypt. The International Monetary Fund (IMF) has rated the country as being one of the top countries in the world undertaking economic reforms, as they have taken steps in the past decade to become more transparent and liberalized economically. Politically, despite having the largest population of any Muslim country, Egypt is a voice of moderation in an ever-volatile region. By avoiding political turmoil and pursuing sound monetary policy, Egypt has produced consistent growth, and should be seen as a model for nearby economies that also don’t have access to enormous natural oil resources.