El Sisi accepts Egypt's central bank governor's resignation

President Abdel Fattah El Sisi accepted the resignation of Egypt's central bank governor Tarek Amer and appointed him as a presidential adviser, a statement from the presidency said on Wednesday.

The announcement comes a day before the Central Bank of Egypt is scheduled to meet on Thursday. The majority of analysts expect the monetary policy committee to raise rates for the third time since March in an attempt to curb inflation. The bank had previously denied rumours of the governor's resignation as part of a government reshuffle that took place on Saturday. Egypt’s parliament approved the extensive Cabinet reshuffle that changed the leadership at 13 ministries, including those overseeing health, irrigation and water resources, and tourism.

Gamal Negm, the first deputy governor of the central bank, had dismissed reports of Mr Amer's resignation and said his term ends in November 2023.

The president appoints the central bank governor with the approval of the majority of parliament for a once-renewable four-year term, according to the Egyptian constitution.

Mr Amer was appointed to his post in November 2015 and in 2019, Mr El Sisi renewed his tenure for four years. Global Finance magazine recently named Mr Amer as one of the central bank governors who earned the highest grades in its annual report card of governors in 96 countries. He was one of 10 governors who received an A- grade, along with Saudi Arabia's central bank governor Fahad Al Mubarak.

The change comes at a sensitive time, as debate continues over how to contain soaring inflation, support the depreciating Egyptian pound and encourage foreign investors to return to Egypt amid the Russia-Ukraine war.

Egypt's annual core inflation rate increased to 15.6 per cent in July from 14.6 per cent in June, central bank figures show. The central bank has an inflation target rate of 5 per cent to 9 per cent, but in June said it would tolerate a higher level until after the fourth quarter.

The central bank allowed the pound to depreciate by more than 14 per cent in March, and since then it has fallen to more than 19 pounds to the US dollar. That is the lowest it has been since November 2016, following a drastic devaluation as part of an International Monetary Fund reform programme.

Foreign currency reserves have decreased over the past five months to $33 billion from about $41bn.
Analysts say the pound is still overvalued and has further to fall, forecasting it to reach around 21 to the dollar by the end of the year. The currency is about 10 per cent overvalued, based on its real effective exchange rate, according to Deutsche Bank and Goldman Sachs, while Citigroup has a lower estimate of 5 per cent.

Devaluing the pound further will help Egypt boost the competitiveness of its exports and better position itself for a new loan from the IMF, which has encouraged a flexible exchange rate based on market conditions.

However, it would put added pressure on consumers. Egypt's annual urban inflation rate accelerated to 13.6 per cent in July from 13.2 per cent in the previous month, driven by rising food prices and a local leap in fuel costs, according to the local statistics agency Capmas.

The central bank raised rates by 200 basis points in May, but kept its rates on hold at its last meeting on June 23. The overnight deposit rate currently stands at 11.25 per cent and the lending rate is 12.25 per cent. Analysts expect a hike of between 50bps and 200bps.