Egypt Eases Curbs on Dollar Deposits as Black Market Rate Climbsby and
Deposit limit for some companies raised to $1 million
Move designed to address nation's growing dollar shortage
Egypt increased the amount of foreign exchange that companies can deposit in banks, giving firms more leeway to buy cash on the black market.
Businesses that rely on imported components to produce goods for export can now keep as much as $1 million in monthly deposits, according to an e-mailed statement from the central bank late on Monday. That’s an increase from a previous cap ranging from $50,000 to $250,000. Companies have three months to show their export proceeds are at least equal to the amount deposited, the regulator said.
The move may give currency vendors a bigger role in setting the price of the pound and represents a shift toward a free float, according to Hany Genena, head of equities strategy at Cairo-based Beltone Financial. A dollar shortage in the North African nation has driven the premium to buy the U.S. currency on the black market to a near-record 16 percent over the official rate.
“The Central Bank of Egypt has been channeling marginal demand to the ‘black,’ or more properly, ‘free’ market," Genena said in an e-mailed report Tuesday. "This is a de facto flotation."
Egypt has kept the official price of the pound unchanged since November at 7.83 per dollar, following three devaluations in 2015. In unregulated trading, the greenback cost 9.09 pounds on Tuesday, according to the average of three money changers surveyed by Bloomberg, who asked not to be identified because the trade is illegal.
The black-market rate has weakened 15 percent in the past year compared with a 2.6 percent retreat in the official rate.
The central bank isn’t considering devaluing or floating the local currency, Egypt’s official news agency reported Tuesday, citing an unidentified central bank official. A day earlier, state-run Al Ahram newspaper quoted Prime Minister Sherif Ismail as saying the government plans to announce "hard economic decisions," because it doesn’t have time to postpone them.
The pound’s decline in the black market probably reflects “heightened speculation on devaluation, more so than an increase in demand for dollars,” said Mohamed Abu Basha, a Cairo-based economist at EFG-Hermes, Egypt’s biggest investment bank. “We think a big move in the official rate is unlikely before building a necessary liquidity buffer to defend the currency afterward.”
The regulation change this week comes after the central bank last month raised the deposit limit five-fold for importers of staple foods and medicines to $250,000.