Egypt’s pound steady at auction and on parallel market

Egypt’s central bank kept the pound steady at 7.7301 to the dollar at its official foreign currency auction Sunday, less than two weeks after surprising the market by strengthening it.

The central bank sold 37.8 million dollars at a cut-off price of 7.7301 pounds to the dollar. Earlier this month it strengthened the pound by 20 piasters from 7.9301.

Egypt, which is heavily dependent on imports for food and energy, is facing a dollar shortage and mounting pressure to devalue the currency.

Before this month’s revaluation it had been gradually depreciating the pound through official auctions, but the rate is still far from that on the black market.

A trader on the parallel market said the dollar was changing hands at 8.55 pounds to the dollar on Sunday, roughly unchanged from the rate of 8.56/57 quoted last week.

The decision to strengthen the pound against the dollar earlier this month caused confusion in the market and prompted speculation about a shift in monetary policy.

Egypt’s reserves have tumbled from $36 billion in 2011 to $16.4 billion in October and the country has been rationing dollars through weekly dollar auctions, keeping the pound artificially strong.

The country has been starved of foreign currency since a popular uprising in 2011 ousted autocrat Hosni Mubarak and drove tourists and foreign investors away. Growing evidence that a Russian airplane crash in the Sinai on Oct. 31 was caused by a bomb is expected to further threaten tourism revenues.

In February the central bank imposed capital controls, limiting dollar-denominated deposits to $50,000 a month in an attempt to fight the black market. The move caused problems for importers, who could no longer source their foreign currency needs.

source: Reuters