Egypt’s pound steady at first forex auction under new c.bank governor

Egypt’s central bank held the pound steady at 7.7301 pounds to the dollar Sunday at the first official foreign currency auction since new central bank governor Tarek Amer took office on November 27.

The pound strengthened on the black market, with traders anticipating new policy moves from the central bank. One trader said the dollar changed hands at 8.50 pounds on Sunday, compared with 8.60 pounds last Thursday.

“The pound strengthened because it was said that there was a central bank meeting today and we don’t know what decisions will be taken,” one black market trader told Reuters.

Egypt, which is heavily dependent on imports, is facing a dollar shortage and mounting pressure to devalue the pound. The central bank had been gradually depreciating the pound through official auctions, but the rate is still far from that on the black market.

The central bank surprised markets when it strengthened the pound on Nov. 11 by 20 piasters against the dollar, causing confusion in the market and prompting 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 auctions, keeping the pound artificially strong.

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