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New Egypt Central Banker Said to Expect Stable Pound on IMF

The pound has weakened about 6 percent to a record since the central bank started dollar auctions Dec. 30 to limit the availability of foreign currencies and conserve international reserves. Photographer: Shawn Baldwin/Bloomberg
The pound has weakened about 6 percent to a record since the central bank started dollar auctions Dec. 30 to limit the availability of foreign currencies and conserve international reserves. Photographer: Shawn Baldwin/Bloomberg

Jan. 16 (Bloomberg) -- Hisham Ramez, who is set to become Egypt’s central bank governor next month, said a day before his nomination that the pound may weaken more this quarter before stabilizing as Egypt secures International Monetary Fund aid and other inflows.

Ramez, managing director of Commercial International Bank Egypt SAE, told investors and analysts on a Jan. 9 conference call that he doesn’t expect the currency to weaken beyond about 6.7 Egyptian pounds a dollar by the end of March, according to three people who were on the call.

Ramez told Al Arabiya satellite channel in comments aired today that he expects that “we will get to the stage of stabilization in the exchange rate soon.” The pound has weakened about 6 percent to a record since the central bank started dollar auctions Dec. 30 to limit the availability of foreign currencies and conserve international reserves.

President Mohamed Mursi approved the nomination of Ramez, a former deputy central bank governor, to succeed Farouk El-Okdah and lead the bank through the worst currency crisis since the 2003 devaluation. Foreign reserves have plunged almost 60 percent since the 2011 uprising that ousted Hosni Mubarak. The pound has weakened 1.1 percent to 6.5827 a dollar since Ramez’s comments on Jan. 9, according to data compiled by Bloomberg.

The forecast “seems quite reasonable,” Emad Mostaque, a London-based investment strategist at Noah Capital Markets, said by phone. “We need to see what the next reserves numbers are going to be.”

Pound Depreciation

A spokesman for Commercial International Bank, who declined to be named in line with company policy, confirmed Ramez spoke about foreign exchange regulations on a Jan. 9 conference call. He declined to provide the details of the comments. Ramez, slated to take office Feb. 3 after the upper house of parliament approves his nomination, didn’t answer a text message and calls to his mobile phone.

The central bank “doesn’t target a certain exchange rate,” Ramez told Al Arabiya. “What matters to us is to have an orderly market,” he said, adding: “We will reach this target.”

He said there were “many positive signs” in the foreign exchange market, including people starting to sell dollars. “Things have started to go both ways in the market-- selling and buying, supply and demand.”

Forward contracts, which provide guidance for investor expectations, show the currency may weaken to 7.35 a dollar in three months, according to data compiled by Bloomberg.

Dollar Auctions

The pound’s depreciation accelerated after the central bank began dollar auctions with a limit on how much each bank can buy amid a political crisis that disrupted IMF talks. The measures add costs to average Egyptians to hedge against what investment bank EFG-Hermes Holding SAE called a “mini devaluation.”

While welcoming the latest central bank exchange-rate policy, Ramez said the move should have been made earlier, the people said.

“I expect that in the not distant future we would hold auctions to buy the dollars surplus from the banks,” Ramez told Al Arabiya.

The central bank’s reserves were little changed in December at $15 billion even after Qatar doubled a deposit at the central bank to $4 billion. That transfer took place last month, Nidal Assr, central bank’s sub-governor, said Jan. 10.

Exchange Fees

Banks and exchange houses have started charging customers seeking foreign currencies fees of as much as 2 percent for any sale. The central bank issued instructions to lower the fees to between 0.5 percent and 1 percent for individuals and companies wishing to buy dollars “for non-commercial purposes,” according to Al Mal newspaper.

“Hisham was a very important element in designing and implementing monetary policy with Dr. Farouk el-Okdah,” former Finance Minister Samir Radwan said by phone. “From that point of view, we don’t expect any major upheavals because that is a very sensitive file especially now when monetary policy is at the center of negotiations with the IMF and the pound is under pressure.”

Ramez told Al Arabiya that increasing transparency to manage expectations will be a priority for him as a central bank governor and that he will have channels of communications open with investors.

IMF Visit

The government asked the IMF to delay the loan accord last month after Mursi suspended tax increases linked to an economic plan backed by the fund amid escalating political tensions. A team from the Washington-based lender is due to arrive in Egypt in two to three weeks, presidential spokesman Yasser Ali said Jan. 8.

“We are going to be back on track very soon,” Prime Minister Hisham Qandil said Jan. 13 at a conference in Cairo. Egypt invited the IMF mission “to again realign the program so we can move forward with our national reform program.”

The local currency will “never” weaken to the 7 pound level, former Finance Minister Momtaz El-Saieed said Jan. 2. El-Mursi el-Sayed Hegazi, a University of Alexandria economics professor, replaced him as finance minister on Jan. 6 as part of a cabinet shuffle.

Radwan said Ramez will be taking over at a critical time.

“You are managing a central bank in a country in crisis. At the center of the crisis are the pressures on your currency,” Radwan said. “His main challenges are the pound and inflation.”

To contact the reporters on this story: Alaa Shahine in Dubai at asalha@bloomberg.net; Mariam Fam in Cairo at mfam1@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net

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