Egypt pound hits new low at exceptional forex auction

File - An Egyptian policeman directs the traffic in front of the Egyptian Central Bank offices in Cairo, Egypt, Sunday, Jan. 6, 2013. (AP Photo/Nasser Nasser)

CAIRO: The Egyptian pound weakened Wednesday at an exceptional central bank sale of $1.1 billion aimed at supplying dollars to importers of essential foodstuffs, allowing it to hit a new all-time low in the official market.

In a country where subsidized food is considered essential to averting social unrest, tight finances have been hindering payments for food commodities. Egypt is the world’s biggest wheat buyer.

The central bank announced a cutoff price of 7.0950 pounds to the dollar at the auction, weaker than at the last central bank foreign exchange sale held Monday, when the cutoff price was 7.0451.

In the interbank market, the dollar changed hands for as much as 7.1049 pounds, the lowest according to Thomson Reuters data going back to the 1990s. 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.

The central bank did not say whether it had sold the full amount of foreign currency offered.

Egypt has been suffering from a sustained dollar shortage as political turmoil following the 2011 uprising against veteran leader Hosni Mubarak unnerved foreign investors and tourists, traditionally major sources of foreign currency.

Egypt’s foreign reserves rose to $17.489 billion in April from $17.414 billion in March, but are still markedly lower than the $36 billion seen before the 2011 revolt.

Banks and traders say that some of the funding problems which surfaced early last year have re-emerged.

“This auction is intended to cover and clear all pending food backlogs to secure availability of staple food commodities over the coming period,” the central bank said in a statement.

Wednesday’s auction is significantly larger than the $40 million foreign currency sale Egypt holds three times a week.

At its last exceptional dollar auction on Jan. 27, the central bank sold $1.5 billion at a cutoff price of 6.9518 Egyptian pounds.

The Egyptian pound has been dropping for the last 10 sales as the central bank has been allowing it to weaken. It has been hitting successive lows.

On the black market, the dollar traded at around 7.49/52 on Wednesday, slightly stronger than Tuesday’s rates of 7.52/54, a trader said.

The bank introduced regular dollar sales in December 2012 to counter a run on the pound.

Arab Gulf countries pledged more than $12 billion in aid to Egypt after the army deposed Islamist President Mohammad Morsi last July after mass protests. But even the Gulf aid has not prevented Egypt’s current account recording a deficit of around $1.5 billion between October and December.

“It’s a managed depreciation. It makes sense to have a depreciation of the pound to bring it to a more realistic level,” said Angus Blair, chairman of business and economic forecasting think-tank Signet.

A version of this article appeared in the print edition of The Daily Star on May 15, 2014, on page 5.


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