Egypt Pound Drop Slows as Central Bank Curbs Move, Boosts Supply

The Egyptian pound weakened the least in almost six weeks at an auction today after the central bank introduced new curbs to slow the depreciation and offered more U.S. currency. The benchmark dollar bonds rose.

The regulator auctioned $49.2 million at a weighted average price of 6.7043, compared with 6.702 a dollar yesterday, according to its data on Bloomberg. Banks received 43 percent on average of what they sought, up from 24 percent yesterday, the data show. The central bank sold $172 million at this week’s sales, a three-week high, according to the data.

As he took office this week, Central Bank Governor Hisham Ramez set new exchange-rate movement limits for the interbank market to curb the worst currency slump since the 2003 devaluation. The pound weakened less than 0.1 percent at today’s auction, the least since the regulator started the sales on Dec. 30 to limit foreign exchange available to banks in order to slow the pace of depletion in foreign reserves.

“The central bank’s measures this week have helped reduce the gap between the official and parallel exchange rates and lower the panic on the street with respect to the currency,” Mohamed Kotb, regional asset management director at Cairo-based Naeem Financial, said by phone.

The Egyptian pound was little changed at 6.7143 a dollar as of 2:18 p.m. in Cairo, bringing the depreciation since the auctions started to 7.8 percent.

‘Dire’ Situation

Banks were also asked to give priority to supplying the U.S. currency to importers of basic commodities, state-run Ahram Online reported today. Lenders are not obliged to take any collateral from such importers through June, compared with a requirement of 50 percent under prior rules, Ahram said.

Egypt has been struggling to conserve dollars after net foreign reserves plunged more than 60 percent in the past two years to $13.6 billion in January, the lowest in more than 15 years. An escalation of unrest since the second anniversary of the Jan. 25 revolt that ousted former President Hosni Mubarak has placed further strain on the country’s finances, prompting Fitch Ratings to downgrade the nation’s debt last week.

“Fundamentally, nothing has changed as far as Egypt’s macroeconomic situation, which remains dire,” Kotb said.

The government’s benchmark 5.75 percent dollar-denominated bonds due in April 2020 have slumped since Jan. 25, sending the yield up 112 basis points through yesterday. The yield fell five basis points today to 6.63 percent.

Egypt’s borrowing costs also rose today at a sale of 6.5 billion pounds ($969 million) of treasury bills. The six-month and one-year yields each gained two basis points, or 0.02 percentage point, to 13.56 percent and 14.05 percent, respectively, according to central bank data on Bloomberg.

The Finance Ministry reduced its fundraising target from longer-term debt by 44 percent for the first quarter, according to data on its website today, opting instead to boost by 71 percent sales of three-month T-bills.

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