Egypt Pound Hits Record Low After Forex Auction

Egypt’s pound weakened to a record low against the dollar in interbank trade after a foreign currency sale on Thursday, but trading volumes were low as authorities reduced the flow of dollars into the market.

The pound traded at 6.73 against the dollar after the central bank sold $38.3 million, with the cut-off price falling to 6.7204 Egyptian pounds per dollar versus 6.7188 earlier this week.

It was the bank’s 22nd auction of foreign currency since it introduced the sales in December as part of efforts to control the pound’s slide, but it has cut back in the past week on the volume of dollars on offer.

Prices, driven by demand which has forced ordinary Egyptians to buy their dollars on a black market that shadows official trade, have continued to fall steadily.

“It is very clear that the central bank is slowing down the pace of depreciation but it will continue,” one trader, speaking on condition of anonymity, told Reuters.

Two years of political unrest have triggered a flight into dollars, draining foreign reserves which the central bank said fell to $13.6 billion at the end of January – below the $15 billion level needed to cover three months of imports.

Since the central bank introduced the regular auctions in late December, the pound has weakened by just over eight percent and the amounts offered at auctions have tapered.

Earlier this month the central bank tightened the pound’s trading band in the interbank forex market, limiting banks to buying or selling hard currency in a band of 0.01 pounds below or above the weighted average bid at auction.

“Whenever there is an auction there is always a new time low because it is on a depreciation basis,” the same trader said.

Egypt is negotiating for a $4.8 billion IMF loan but talks have stalled since the government postponed ratification of the deal in December due to political unrest at the time.

On Tuesday rating agency Moody’s cut Egypt’s credit rating to B3 from B2 and added it may cut it further, citing doubts about its ability to secure the IMF loan and economic impact of a new round of political unrest.

“There is a shortage in dollars. Everyday the pound goes to a record low and the picture is not clear. Political stability or news about the IMF loan could strengthen the pound,” another trader, speaking on condition of anonymity said.

Reuters