Egypt central bank says it injected $14 bln in three months to ease dollar crunch

Egypt’s central bank has injected over $14 billion dollars into local banks over the past three months to facilitate import activity and curb inflation on essential goods, a government statement said on Thursday.

Egypt has been facing an acute dollar shortage that has hampered import activity and sapped industrial production ever since a 2011 uprising drove away foreign investors and tourists, key sources of dollars.

The government has in recent months applied various measures, from import restrictions to higher tariffs, to conserve scarce dollars while the central bank has injected foreign currency into the banking system to free up essential imports.

“The central bank and Egyptian banks have embarked on an urgent plan to facilitate foreign trade in order to provide for production and for essential consumer goods for Egyptian citizens,” a central bank report cited in the statement said.

“To this end the central bank has provided more than $14 billion over three months and this has had an immediate impact on foreign trade and industrial activity,” it continued.

The dollar injections have helped push down prices on essential food items by 25 to 35 percent, the statement added.

Egypt’s annual urban consumer inflation fell to 10.1 percent in January from 11.1 percent the previous month, the statistics agency CAMPAS said earlier in the week.

The central bank report said the dollar injections did not affect its level of foreign reserves, which have remained steady around $16 billion dollars in recent months, or roughly enough for three months of imports.

“In the context of increasing confidence in the Egyptian economy, and the investment environment in Egypt, the central bank has been able to preserve the level of international reserves despite making the necessary monetary payments alluded to,” the statement said, without further explanation.

Egypt’s central bank has been rationing dollars and keeping the pound artificially strong at 7.7301 per dollar through weekly dollar auctions.

In a move seen by economists as a way to limit dollarization ahead of a potential currency devaluation, Egypt’s state banks in November raised interest rates on certificates of deposit to 12.5 percent from about 10 percent.

The CD rate hike “led to inflows of more than 120 billion Egyptian pounds ($15.33 billion) into these instruments,” the statement said.

source: Reuters