CBE offering $1.5 bln at auction to eliminate black market

The Central Bank of Egypt (CBE) will offer on Wednesday to sell $1.5 billion in an exceptional auction to banks so as to “eradicate” the country’s currency black market, said the bank’s governor Tarek Amer.

The bank announced the auction, the third of its kind this week, with the intent to clear import-related debt in the midst of a hard currency crunch, it said in a statement on Tuesday.

The aim is to clear 100 percent of customer debt incurred by local banks in financing essential imports, Amer told Al-Ahram Arabic news website on Tuesday.

The CBE has sold $198 million to the banks at a Monday auction and another $198 million on Tuesday at a cut-off price of EGP 8.85 per dollar, effectively allowing the Egyptian pound to depreciate by some 14 percent, its sharpest drop since 2003.

The consecutive auctions are designed to “eradicate” Egypt’s currency black market, said Amer, referring to a parallel market that has flourished as the CBE defended the pound following the 2011 uprising that ousted President Hosni Mubarak and caused political and economic turmoil.

The CBE also announced it would adopt a more flexible exchange rate regime on Tuesday in a move that was praised by economists, bankers and the Federation of Egyptian Industries, and which had been called for by the International Monetary Fund.

Meanwhile, the EGP-denominated certificates of deposit launched by Egypt’s two largest state-owned banks on Monday, for which buyers must pay in dollars in return for a 15 percent annual yield over three years, will strengthen the pound, Amer told Al-Ahram.

Last week, the bank lifted foreign currency deposit and withdrawal restrictions for individuals and companies importing essential and capital goods. The move aimed to facilitate such imports in the midst of a foreign currency shortage that has slowed business activity and made it increasingly difficult for Egypt to pay for vital imports in a timely manner in recent months.

source: Ahram Online