- Lenders imposed credit card caps to limit overseas withdrawals
- Currency crisis weighing on economy with pound at record low
The Egyptian pound extended a record low on the black market, as tighter restrictions on the use of local debit and credit cards overseas and comments by the central bank governor stoked speculation of a devaluation.
The pound fell to 12.99 per dollar on Tuesday from 12.02 last week, according to the average quote of five currency traders in Cairo and Alexandria. That’s the lowest since Bloomberg started tracking black market data in 2013, and ends two months of relative stability with the pound hovering at about 11 per dollar until the beginning of July. The official rate is 8.8.
The drop comes after central bank Governor Tarek Amer said earlier this month that defending the pound had been a “grave mistake,” and as Egyptian lenders limited overseas withdrawals on local credit and debit cards to as low as $125 per week. The overseas curb, the latest attempt by authorities to end a dollar shortage that’s crimping growth, drove the black market reaction, said Omar El-Shenety, managing director at investment bank Multiples Group in Cairo.
“It seemed as if banks were scraping the bottom of the barrel to save a few thousand dollars from individual travelers,” El-Shenety said. “Coupled with the governor’s recent comments, the market predicted a devaluation of the pound and acted accordingly. The weakening of the pound in the black market was more a result of speculation than any fundamental economic reason."
Amer said last week that a devaluation was up to the central bank and that it would act at the “appropriate time,” Egypt’s state-run news agency MENA reported. There was no talk of floating the pound, he said. The pound has been little changed on the official market since the central bank devalued it by about 13 percent in March and pledged to adopt a more flexible exchange rate.
Policy makers have introduced a series of unpopular measures, including tighter import regulations, in a bid to stem currency outflows. Business activity has shrunk for nine consecutive months, according to the Emirates NBD Purchasing Managers Index, as a lack of dollars undermined corporate investment and foreign investors stayed away for fear of being unable to repatriate profits.
Overseas spending became the authorities’ latest target when local lenders received a memo, seen by Bloomberg News, in June ordering them to block the use of Egyptian pound-issued debit and prepaid credit cards abroad. Facing a public backlash, the bank denied any change in policy and said the instructions were aimed at curbing the abuse of cards. Central bank officials didn’t answer calls seeking comment.
Private and state-owned banks, including the National Bank of Egypt, have since imposed weekly limits of $125 for withdrawals on pound-denominated cards outside the country, the Cairo-based Al-Mal newspaper reported. Egypt’s largest listed lender, Commercial International Bank Egypt SAE, increased fees for foreign usage, local media said. Barclays Bank Egypt SAE more than doubled such charges to 7 percent, according to a text message sent to clients.
“These decisions signify the continuous deterioration in the foreign-currency position,” said Hany Farahat, Cairo-based senior economist at CI Capital Holding, a unit of Commercial International Bank. “Whatever Egypt could afford two years ago, it can’t afford now.”
Egyptians spent about $2.9 billion overseas in the first nine months of the fiscal year ended June, from $2.5 billion a year earlier, according to the latest central bank data. The figure covers leisure travel, the Islamic pilgrimage to Mecca, medical care and the expenses of students studying abroad.
The banks’ new restrictions threaten a common technique used by black market traders, who travel abroad with a large number of cards denominated in Egyptian pounds, withdraw dollars at the official exchange rate and smuggle the money back into Egypt to sell illegally for a profit.
The restrictions are counterproductive, according to El-Shenety at Multiples Group. “The market saw the new credit and debit cards regulations as an indication of how bad things are,” he said.