Egypt’s central bank sold $38.3 million at a currency auction today, meeting on average 24 percent of the amount demanded by banks after a plunge in the nation’s currency. Dollar bonds advanced.
The regulator sold the dollars at a weighted average of 6.7204 pounds, little changed from yesterday’s sale, according to its data on Bloomberg. It’s the third successive auction in which the central bank supplied less than 33 percent of the amount of dollars requested by banks.
The pound has depreciated 8 percent since the central bank began the auctions on Dec. 30 in an attempt to reduce the availability of the U.S. currency to stem a drop in foreign reserves. The country will invite the International Monetary Fund to resume talks for a $4.8 billion loan agreement this month, Prime Minister Hisham Qandil told reporters today.
“It’s clear the central bank has an idea of how much it is willing to let the currency depreciate until the country can secure IMF assistance,” Mona Mansour, chief economist at Cairo-based investment bank CI Capital, said by phone. “It’s a policy that can be successful in the short term but it can’t be sustained in the long term because we’re running out of dollars and Egypt is a net importer.”
Egypt’s foreign reserves slumped $1.4 billion last month to $13.6 billion, the lowest level in more than 15 years. That’s enough to cover three months of imports, according to Bloomberg calculations based on central bank data. The decline, along with continued political instability, prompted Moody’s Investors Service this week to cut the country’s rating to B3, on par with Argentina and six levels below investment grade.
To boost the appeal of holding pounds, state-owned banks, among others, have raised interest rates on local currency deposit certificates. The government has also prepared a list of more than 100 items classified as luxury products or ones that are matched by local production that will incur higher customs duties, state-run Al Ahram newspaper reported today.
The pound, whose interbank rate is capped at 1 piaster over the weighted average price of dollars at the most recent auction, was little changed at 6.7304 a dollar as of 1:28 p.m. in Cairo, according to National Bank of Egypt prices on Bloomberg show.
The government’s benchmark 5.75 percent dollar-denominated bonds due in April 2020 gained, sending the yield down two basis points, or 0.02 percentage point, to 6.78 percent, according to prices compiled by Bloomberg.
Egypt’s local borrowing costs retreated at a 6.5 billion 6.5 billion-pound ($966 million) auction of treasury bills today. The average yield on six-month notes fell 14 basis points from last week’s sale to 13.42 percent, according to Finance Ministry data. The 12-month yield declined seven basis points to 14 percent.