A man checks a currency board in a bank in Cairo. In a country where subsidised food is considered essential to averting social unrest, tight finances have been hindering payments for food commodities, traders have said.
Reuters/Cairo
The Egyptian pound weakened yesterday at an exceptional central bank sale of $1.1bn aimed at supplying dollars to importers of essential foodstuffs, allowing it to hit a new all-time low in the official market.
In a country where subsidised food is considered essential to averting social unrest, tight finances have been hindering payments for food commodities, traders have said. Egypt is the world’s biggest wheat buyer.
The central bank announced a cut-off price of 7.0950 pounds to the dollar at the auction, weaker than at the last central bank foreign exchange sale held on Monday, when the cut-off price was 7.0451.
In the interbank market, the dollar changed hands for as much as 7.1049 pounds, the lowest according to Thomson Reuters data going back to the 1990s.
The rates banks are allowed to trade dollars that are determined by the results of the central bank sales, giving the bank effective control over official exchange rates. The central bank sold the entire amount it had offered.
Egypt has been suffering from a sustained dollar shortage as political turmoil following the 2011 uprising against veteran leader Hosni Mubarak unnerved foreign investors and tourists, traditionally major sources of foreign currency.
Egypt’s foreign reserves rose to $17.489bn in April from $17.414bn in March, but are still markedly lower than the $36bn seen before the 2011 revolt.
Banks and traders say some of the funding problems which surfaced early last year have re-emerged.
“This auction is intended to cover and clear all pending food backlogs to secure availability of staple food commodities over the coming period,” the central bank said in a statement.
Yesterday’s auction is significantly larger than the $40mn foreign currency sale Egypt holds three times a week.
At its last exceptional dollar auction on January 27, the central bank sold $1.5bn at a cut-off price of 6.9518 Egyptian pounds.
The Egyptian pound has dropped more than 10 times in a row at the sales as the central bank allows it to weaken, hitting successive lows.
On the black market, the dollar traded at around 7.49/52 yesterday afternoon, slightly stronger than Tuesday’s rates of 7.52/54, a trader said.
The bank introduced regular dollar sales in December 2012 to counter a run on the pound.
Some Arab Gulf countries pledged more than $12bn in aid to Egypt after the army deposed former president Mohamed Mursi last July after mass protests. But even the Gulf aid has not prevented Egypt’s current account recording a deficit of around $1.5bn between October and December.
“It’s a managed depreciation. It makes sense to have a depreciation of the pound to bring it to a more realistic level,” said Angus Blair, chairman of business and economic forecasting think-tank Signet.
“Depreciation is part of an economic policy programme that Egypt requires. It could be part of getting the house in order ahead of presidential elections.”