Egypt’s pound weakened to a record in unregulated trading as demand for U.S. dollars rose in the face of a central bank assurance that it won’t devalue the currency.
The pound’s street rate fell to 9.12 per dollar, from 9.09 last week, according to the average of quotes from four dealers in Cairo and Alexandria surveyed by Bloomberg. That’s the lowest level since the weekly surveys started in April 2013 and represents a 14 percent discount to the official exchange rate the central bank has maintained since November.
Policy makers in North Africa’s biggest economy are struggling to alleviate a shortage of foreign currency even as they balk at allowing the pound to devalue in an attempt to contain one of the Middle East’s highest inflation rates. Central-bank Governor Tarek Amer said this week he has "no intention" of letting the currency depreciate after increasing the limit for dollar deposits in local banks for some companies.
The pound’s decline "reflects pent-up demand that was released after the central bank raised the dollar deposit caps," said Ziad Waleed, an economist at Cairo-based Beltone Financial. "We expect the pound to weaken further because there are no new inflows to ease the pressure on the currency and reserves are too low to allow officials to defend it.”
Egypt has spent billions of dollars since the election of President Abdel-Fattah El-Sisi in June 2014 to prop up the pound, helping limit its depreciation over that period to 8.7 percent. That didn’t stop the black market rate from weakening more than twice that much. The dollar drain has left foreign reserves at the equivalent of about three months of the nation’s imports.
The central bank may opt for a sharp increase in interest rates when it meets next month in order to defend the currency, Waleed said in a research report published earlier Tuesday. The government yesterday cut its growth forecast for the fiscal year that ends in June to a maximum of 4.25 percent, down from a previous estimate of 5 percent, because of the negative impact on tourism after the downing of a Russian passenger jet in October.
Currency dealers surveyed by Bloomberg ask not to be identified because trading outside official price limits violates central-bank rules.