Egypt’s Black-Market Dollar Rate Jumps On Short Supply, Unrest

Egyptian black-market currency dealers raised their dollar rates as demand for the U.S. currency increases in the run up to nationwide protests planned for later this month.

The dollar is selling for 7.57 pounds in unregulated trading, an 8.3 percent premium over the official price, according to the average of three quotes from dealers in Cairo, who asked not to be identified because the trade is illegal. That’s the highest since Bloomberg started the weekly surveys on May 21. Last week, the black-market rate was 7.46 pounds, or a 6.7 percent premium.

The supply of dollars on the parallel market has fallen as demand grows before pro- and anti-government activists start nationwide demonstrations June 30, the anniversary of the day Islamist President Mohamed Morsi took office last year. The central bank has curtailed the pound’s decline in the past month after the currency plunged more than 11 percent since Dec. 30, when the regulator started dollar auctions to ration supply.

“It’s normal for the spread to increase as demand from the retail segment rises amid instability ahead of planned protests,” Mona Mansour, head of research at Cairo-based CI Capital, said by phone. “We may see the unofficial rate decline if the central bank offers another exceptional FX sale this month.”

Dollar Auctions

The central bank started auctioning the U.S. currency after its foreign reserves fell by more than half since the start of the revolt that ousted Hosni Mubarak in 2011. Those sales typically take place three times a week, and the regulator has also held exceptional currency auctions to provide banks with dollars to cover imports of basic commodities. The extra funds helped narrow the black-market premium from as much as 15 percent in early April.

The pound weakened 0.3 percent in past month to 6.9957 a dollar as of 1:22 p.m. in Cairo, according prices compiled by Bloomberg. That compares with an average 1.2 percent monthly decline from February to April, the first three months of Central Bank Governor Hisham Ramez’s tenure.

Twelve-month non-deliverable forwards for the pound traded at 8.45 a dollar today, reflecting investor expectations for the currency to lose 17 percent in the period.

The yield on the government’s $1 billion of benchmark 5.75 percent Eurobonds maturing in 2020 was little changed at 8.64 percent, according to prices compiled by Bloomberg. It has increased 60 basis points, or 0.6 of a percentage point, this month.