Egypt’s central bank sold a record $600 million to local lenders today to finance imports of basic commodities such as wheat after the cash-strapped government secured a $3 billion support pledge from Qatar.
The regulator sold all of the dollars it offered at the exceptional auction at a weighted average of 6.872 pounds each, a 0.2 percent depreciation for the local currency from the last currency sale on April 11, according to central bank data on Bloomberg. The pound has weakened to a record low since the start of the auctions in December.
Egypt, which has limited access to the U.S. currency this year to stem a drop in foreign reserves, is struggling with fuel shortages and power cuts amid an economic slowdown that’s compounding the political crisis facing President Mohamed Mursi. The amount offered at today’s auction is 15 times greater than the amount the central bank typically makes available at regular currency sales.
“There are a lot of people queuing in line for hard currency,” Mona Mansour, chief economist at Cairo-based investment bank CI Capital Holding, said by phone. “The import rationing has eased because they got funds from abroad,” she said, referring to the central bank.
The central bank offered the funds today to fulfill “existing requests at banks to finance imports” of strategic goods, according to a statement on its website. It listed tea, meat, poultry, fish, medicines, production machinery among the commodities. Purchases by the state-run General Authority for Supply Commodities aren’t included, it said. Egypt is the world’s biggest buyer of wheat and also relies on imports for some of its energy needs.
Egyptian foreign reserves have plunged more than 60 percent since the 2011 revolt that toppled Hosni Mubarak to $13.4 billion in March, enough to cover less than three months of imports. To curtail the drop, the central bank started limiting local lenders’ access to dollars at auctions held since Dec. 30. The pound has weakened about 10 percent to 6.8819 a dollar since, according to Commercial International Bank Egypt SAE prices.
The Egyptian government is holding talks with a team from the International Monetary Fund for a $4.8 billion loan that officials say will unlock more assistance from global lenders and donor nations. Additional funds will help bridge the gap between the official rate and the “black market,” Mansour said. The central bank said it will consider holding more commodity-related sales depending on “market needs.”
The pound weakened to 7.85 a dollar in unregulated trading earlier this month, according to three money exchangers interviewed by Bloomberg News.
The Egyptian economy may expand 1.4 percent in the fiscal year that ends in June, according to HSBC Holdings Plc forecasts released this month, down from an earlier estimate of 2.1 percent. Egypt’s economy hasn’t expanded that slowly since the early 1990s, and it achieved average growth of 4.9 percent in the decade before Mubarak’s overthrow, according to IMF data.