The sky is not falling, yet. While Egypt’s Central Bank Governor’s resignation now appears final, it does not mean that the pound is imminently going to undergo devaluation. But it does raise questions about how monetary policy may change in the coming months, especially as Egypt’s much-needed economic reforms are being delayed by the political crisis caused by President Mohamed Morsy’s actions and a controversial constitution that now appears to be approved.
Zawya Dow Jones reports this morning:
President Mohamed Morsy has appointed Hisham Ramez the new governor of the Central Bank of Egypt, a senior official told Zawya.
“A presidential decree to appoint Hisham Ramez is expected to be issued as soon as the referendum on the constitution results are concluded,” the official said on condition of anonymity as he is not authorized to speak to media.
“According to the new constitution, a senior government official cannot take more than two terms in office. Dr. Farouk El Okdah, the current governor of the central bank has occupied this post for three consecutive terms,” the person said.
If accurate, months of speculation that Farouk El Okdah would resign at the end of the year will be over. El Okdah, former chairman of the state-run National Bank of Egypt, came into office in December 2003. He was reappointed for a third four-year term in November 2011.
Hisham Ramez, a former deputy governor himself, will rejoin the Central Bank from Commercial International Bank, where he was appointed vice-chairman and managing director in November 2011. The Zawya story reports:
“Ramez has met with president Morsy and has accepted the appointment, especially since he specialises in management of cash reserves, and has succeeded in stabilising the foreign exchange market in Egypt over the past few months,” the official told Zawya on Sunday.
Foreign reserves have more than halved in the two years following the revolution and stand at a meagre $15 billion. The central bank has kept a tight control over the currency and attempted to stabilise the Egyptian pound with reserves.
But economists say the depreciation of the Egyptian pound to about 6.14 pounds to the U.S. dollar shows a deliberate effort by the central bank to ease pressure on the pound and guard international reserves. The pound stood at 5.7 to the dollar two years ago. Analysts say it could reach 7 pounds to the dollar by the beginning of next year.
Contrary to speculation, the departure of El Okdah has been anticipated for several months and Rebel Economy wrote of his impending retirement (not resignation) in September.
Though the position of central bank governor is critical in any country, for Egypt the position is especially sensitive because monetary policy decisions have the potential to have enormous ramifications on the stability of the country. Having said that, El Okdah’s exit is not as dramatic as some may perceive. He does not hold his steady finger over the economic stability of the nation.
After all, his decisions are made in the context of government policy and very rarely does he make the final call. A presidential decree that gave Morsy more power over who is appointed on the CBE board is an indication of how independent the central bank will be in months to come.
Hisham Ramez may be knowledgeable in all things FX, but he will face a hard battle between succumbing to the requirements of Morsy and government and the needs of the country.