CAIRO: Egypt’s central bank let the local currency weaken to a new low at a dollar sale Wednesday, while a persistent dollar shortage kept prices for the U.S. currency on the black market high above official rates.
One trader said the pound had hit an all-time low at official rates. Reuters data showed it at its lowest since at least 1990.
Foreign exchange traders say the bank is essentially trying to keep track with the black market. Sluggish tourism revenue and foreign investment are keeping supplies short, along with many overseas Egyptians’ preference of sending money home via the black market, where they get a better exchange rate.
The bank said it sold $40 million, the entire amount offered, at a cutoff price of 7.0202 pounds, weaker than the rate of 7.005 pounds at its last sale Monday and the eighth drop in a row.
Three Cairo-based forex traders said the pound had hit its weakest since the central bank started the dollar sales in December 2012, to prop up the currency.
In the closely linked interbank market, the dollar traded for as much as 7.0301 pounds, weaker than its most recent low on July 3, when the army deposed Islamist President Mohammad Morsi after mass protests.
Then, the dollar traded for as much as 7.0297 pounds.
The rates banks are allowed to trade dollars at are determined by the results of the central bank sales, giving the bank effective control over official exchange rates.
Three years of political turmoil since the 2011 uprising against autocrat Hosni Mubarak have unnerved tourists and foreign investors, leaving Egypt’s economy suffering from a persistent dollar shortage.
The central bank – propped up by dollar inflows from Gulf allies – has in recent weeks allowed the pound to weaken. But it still trades markedly weaker on the black market, where it stood at 7.50 per dollar Wednesday compared with 7.48 a day earlier, according to a currency trader.
“The central bank is allowing the pound to weaken at an accelerated pace,” another Cairo-based forex trader said.
“It seems they have a target, and they’re moving faster toward it. ... It’s not a devaluation but a gradual depreciation,” he added.
Egypt’s foreign reserves rose to $17.489 billion in April from $17.414 billion in March, the central bank said Wednesday. They stood at around $36 billion before Mubarak was toppled.
Egypt is facing an energy crunch over the summer, when Egyptians keep air conditioners running day and night. Egypt wants to raise $2.5 billion to cover natural gas imports until the end of December, in part to secure supplies for power stations.
“In the summer, the demand for energy is high, so the pressure on the pound is high. The dollar shortage worsens as demand for dollars intensifies,” said Moheb Malak, economist at Prime Holding.
Former army chief Abdel-Fattah al-Sisi, who is expected to win a presidential election on May 26-27, has suggested he will take a cautious approach to Egypt’s energy troubles, saying the government cannot get rid of costly subsidies overnight.
Putting further pressure on the pound, demand for imported food and goods ahead of Ramadan in the summer is also set to increase, Malak said.
“It shows that the weakening in the official market makes sense,” he said.