- Bankers say dollars sold at 8.78 pounds from 8.85 on Monday
- Appreciation follows biggest one-time devaluation since 2003
The Egyptian pound gained at a central bank sale of dollars to local lenders, two days after policy markers said they would adopt a more flexible exchange rate following the biggest one-time devaluation since 2003.
The central bank said it sold $1.514 billion to local lenders at 8.78 pounds per dollar on Wednesday. The dollar fetched 8.85 pounds at Monday’s sale, which weakened the Egyptian currency by 13 percent. The pound strengthened in the interbank market on Thursday to 8.88 per dollar from 8.95 according to the National Bank of Egypt prices.
Wednesday’s appreciation is part of the central bank’s strategy to crush the black market, according to Hany Genena, head of equities strategy at Cairo-based Beltone Financial.
“This is flexibility in action, the kind of volatility the central bank wants to ingrain in the market,” Genena said by phone. “The bank is trying to break the old return pattern that traders profited from, in which the pound was always weakening.”
Egypt’s economic recovery has been slowed by a foreign-currency shortage that has boosted black market demand for dollars. Inflows of hard currency have dwindled as the political upheaval following the 2011 uprising against President Hosni Mubarak scared away tourists and investors, and the central bank said on Monday its decisions are aimed at attracting foreign investments and improving liquidity.
The EGX 30 stocks index rose 1.25 percent on Wednesday, bringing its gains since Monday’s devaluation to about 10 percent. Yield on Egypt’s Eurobonds due in 2025 fell by an additional 18 basis points to 7.298 percent, their lowest level since Nov. 9.
At the sale, the regulator told lenders to deposit the dollars back at the central bank for one year at an interest rate of 1.2 percent, said local media and two of the bankers, who asked not to be named because they aren’t authorized to speak to the media.
The funds will be used to settle pending dollar debts of some importers, one banker said. By depositing the money, the level of Egypt’s foreign currency reserves will not be affected by the sale, according to the banker.
The central bank has kept the foreign currency reserves stable since September, partly by tapping into commercial bank deposits, according to Genena.
Authorities are expected to raise interest rates by 50 basis points on Thursday to 9.75 percent, according to the median estimate of a Bloomberg survey of economists.
Foreign holdings of Egyptian Treasuries fell to less than $50 million in 2015 from more than $10 billion almost five years ago. The two biggest state banks have started offering a call option to hedge the currency exposure of foreign investors seeking to invest in T-bills.