The Egyptian pound hit its weakest rate in six months on Thursday and the central bank allowed it to fall for the fourth time in five auctions, while a persistent dollar shortage is keeping prices in the black market high above official rates.
The rates banks are allowed to trade dollars at is determined by set ranges around the results of regular central bank dollar sales, giving the central bank effective control over rates in the official market.
“We need to see bigger and much more prolonged movement in the pound before we can say the central bank is loosening its grip on the currency,” said William Jackson, London-based emerging markets economist at Capital Economics.
“We still think the pound needs to fall in order to regain external competitiveness, but the financial support from the Gulf has eased strains on the balance of payments meaning the central bank was able to keep the pound stable.”
Saudi Arabia, Kuwait and the United Arab Emirates have showered Egypt with billions of dollars in aid since the army deposed Islamist President Mohamed Mursi last July following mass protests against him.
Banks sold USD for LE 6.9750 on Thursday, the weakest rate since last September, while the pound fell in four out of five central bank auctions since last week.
The USD was sold for 7.43 LE in the black market on Thursday. It has been trading in a loose range around 7.30-7.40 for the last two months.
The central bank sold dollars at a cut-off price of LE 6.9651 at its auction on Thursday, weaker than the LE 6.9525 on Wednesday of last week when it allowed the pound to weaken for the first time since Jan. 8.
“If we see it in five, six auctions or if the pace continues with larger moves, at that point of time we can start thinking of a gradual allowing of depreciation,” said a Cairo-based forex trader.
The central bank sold USD 38.3 m at its dollar sale on Thursday. It had offered USD 40 m.
Egypt’s foreign currency reserves stood at about USD 17.42 bln pounds in March, central bank governor Hisham Ramez said on Tuesday. This compares with $17.307 in February and USD 36 bln before the uprising that led to the ouster President Hosni Mubarak in 2011.