Bank of America has forecast continued depreciation for the Egyptian pound for the near-term, after the currency lost about 0.7% of its value following the Central Bank of Egypt’s (CBE) recent foreign exchange auction.
The CBE held an “exceptional auction” on Wednesday through which banks were offered to purchase USD 1 bln from the country’s foreign reserves, which stood at USD 17.48 bln in April, in an attempt to meet clients’ import needs of food commodities.
Before the auctions’ operations, the CBE’s official price of selling USD 1 recorded EGP 7.083; however, it has depreciated to register EGP 7.14 against dollar on Thursday.
In a report published on 15 May, Bank of America explained that the move was “surprising” because the CBE usually holds the foreign exchange exceptional auctions after the influx of Gulf aid, the report stated.
In January, the CBE sold $1.5bn in a similar exceptional auction, USD 1.3 bln last September, USD 600 m in April and USD 800 m in May 2013.
“The surprisingly sharp recent moves in EGP suggest that the CBE is finding an opportune window to manage a gradual depreciation and leave itself some breathing room if the coming election period is more volatile than expected,” the report said.
Announcement of further material aid after the presidential elections, scheduled to take place on 26 May, is needed to support the EGP, the bank said.
Financial assistance from Saudi Arabia, Kuwait and the United Arab Emirates was pledged to Egypt following the ouster of former President Mohamed Morsi in July. The three Gulf countries pledged a total aid of $12bn in the form of cash grants, deposits and petroleum products to help support the Egyptian economy.