BEIRUT

Regional

Egypt pound slips on black market as supply dries up

People and vehicles are seen caught in a traffic jam in front of the Central Bank of Egypt's headquarters in downtown Cairo March 17, 2013. REUTERS/Amr Abdallah Dalsh

CAIRO: The Egyptian pound has fallen sharply against the dollar on the black market in the last few days, market participants said on Sunday, citing dwindling supply of the U.S. currency.

They forecast a further decline unless more hard currency enters the market.

Egypt, which has suffered political and economic instability since President Hosni Mubarak was ousted more than two years ago, is struggling to curb a run on the pound, which at official rates has fallen 9 percent against the dollar this year.

The currency's value on the black market has dropped even further and faster. Five market participants said dollars were being offered at rate of 7.55 pounds on Sunday, compared to 7.45 pounds just a few days ago. The official interbank rate is 6.80 pounds to the dollar.

One foreign exchange dealer attributed the recent fall to increased demand from importers as they seek to meet their dollar needs for second-quarter imports.

"For amounts of $10,000 or above the rate is 7.55 pounds to the dollar. Lower amounts are at 7.50 pounds. It's been like that for two days because supply (of dollars) is scarce," one dealer in the parallel market said.

"The supply will be even lower within two or three days because there is lots of demand. If they don't add to the foreign reserves then the price of the dollar will go up."

Egypt's foreign reserves dropped to a critical level of $13.5 billion at the end of February, barely enough to cover three months of imports, from $13.6 billion the month before. Reserves before the uprising in 2011 stood at $36 billion.

The central bank, which is due to announce its foreign reserve level this week, said on Thursday that levels have not declined significantly in March even though it used $1.3 billion for imports including essential commodities and oil.

In order to control the decline in the local currency the central bank introduced weekly dollar auctions in December. At Thursday's auction the bank sold $38.4 million to banks at a cut-off price of 6.7931 pounds to the dollar.

Through the auctions the government is rationing its supply of dollars and giving priority to importers of essential goods, leaving other importers to meet their hard currency needs via the parallel market.

Dollars are available but at rising prices, said one executive at an Egyptian company that imports goods from abroad.

The recent jump in prices is an indication of a black market that is drying up due to higher demand than supply, one banker who declined to be named said.

"Clients who work on parallel markets confirm that prices jumped. This is a major leap that happened in the past three days because of the lack of availability," he said.

"It is not dry yet but it is not as liquid as it was ... It is quite possible for the dollar to reach 8 pounds or even higher if the problem continues," he said.

To draw in more investors, the central bank reopened a scheme this month that guarantees foreign investors in Egyptian stocks and government bonds will be able to recover their hard currency when they sell despite the shortages in the country.

Egypt is trying to cut its budget deficit in order to secure a $4.8 billion International Monetary Fund loan to help its ailing economy and address its foreign exchange crisis. A technical team from the Fund is due to visit Cairo on Wednesday to discuss the deal.

 

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