Egypt Steps Up Dollar Sales as Pound Weakens in Black MarketAhmed A. Namatalla
Egypt’s central bank will step up foreign-currency sales this week after a dollar shortage pushed the pound to its weakest level in 20 months on black markets.
The bank will offer $40 million four times a week, up from the current three, it said in an e-mailed statement on Dec. 11.
The central bank didn’t address the value of the Egyptian pound at the sales. The official exchange rate has been unchanged for almost six months at 7.1401 per dollar, while on the black market it fell to 7.71 per dollar on Dec. 9, according to the average of four dealers surveyed by Bloomberg. The central bank may allow the pound to fall to 7.5 per dollar by the end of next year and 8 per dollar by the end of 2016, according to an HSBC Holdings Plc report e-mailed Dec. 11.
Egypt’s currency has come under increased pressure after the nation repaid $2.5 billion of bonds last month, dragging foreign reserves to a five-month low. Accelerating economic growth is also responsible for the shortage of dollars, according to investment bank EFG-Hermes Holding SAE, which estimates a monthly shortfall of up to $600 million.
Officially, the pound is down 2.8 percent in 2014 and 19 percent since the 2011 revolt against Hosni Mubarak, as foreign investment dried up and tourism slowed amid political turmoil. Policy makers started foreign-currency auctions in December 2011 to ration dollars as reserves plunged.
“The central bank is reacting to increased demand for foreign currency resulting from the pick-up in economic activity, and not necessarily the pound’s weakening on the black market,” Mohamed Abu Basha, a Cairo-based economist at EFG-Hermes, said by phone. “This decision should partially bridge the gap.”
Egypt’s $272 billion economy, North Africa’s biggest, grew 6.8 percent from a year earlier in the quarter through September, largely due to a lack of activity in the same period of 2013, amid unrest that followed the military’s toppling of an elected Islamist government. Egypt is targeting annual growth of about 4.5 percent in the fiscal year that starts in June, Finance Minister Hany Kadry Dimian said today.
One-year non-deliverable pound forwards traded at 8.75 per dollar on Dec. 12, the highest level since July 2013 and up from 7.89 a month earlier, according to prices compiled by Bloomberg. That signals investors are speculating that the currency will weaken 18 percent over the duration of the contracts.
The central bank will offer $1.1 billion of one-year treasury bills tomorrow, according to an e-mailed statement, to help repay $1.19 billion of maturing notes Dec. 16. The government paid an average 2.182 percent to sell similar securities last month, the lowest since it started selling dollar-dominated local debt in 2011.