Egypt Pound Hits Record Low as Bets Mount For Second Devaluationby
Gap between official and unofficial rates at widest on record
CE says devaluation likely "sooner rather than later"
The Egyptian pound extended losses in black market trading on speculation that policy makers will weaken the official exchange rate to end the country’s shortage of foreign currency.
The pound slumped to 11.75 a dollar, according to the average quote of four money changers in Cairo surveyed by Bloomberg on Tuesday. That compares with 11.54 a week earlier and represents a 32 percent premium to buy dollars over the official exchange rate, the widest gap since Bloomberg started tracking the data in 2013.
Bets that Africa’s third-biggest economy will cheapen its currency for the second time this year are intensifying after the central bank said earlier in July it regrets defending the pound, and that further depreciation would benefit exports. Egypt’s shortage of dollars has helped fuel the highest inflation rate in six years and repelled foreign investors, making it harder for President Abdel-Fattah El-Sisi to deliver on promises to boost the economy.
"There seems to be a shift within Egypt towards more orthodox policy making," Jason Tuvey, London-based Middle East economist at Capital Economics, said in an e-mailed report on Tuesday, in reference to the central bank’s comments. Devaluation of the pound "is likely to happen sooner rather than later."
Authorities have resisted weakening the pound for fear that it would drive prices higher in a country where almost half the population is still stuck in or near poverty five years after the uprising that ended President Hosni Mubarak’s three decades in power. With financial aid from Gulf Arab allies drying up, Egypt is seeking to implement reforms such as introducing a new-value added sales tax and curbing civil servant wages to help secure loans from the World Bank and potentially, the International Monetary Fund.
A 13 percent devaluation of the pound’s official exchange rate in March, the biggest in more than a decade, has so far failed to attract back foreign investors to the government debt market where they held $10 billion worth of T-bills at the end of 2010.
Black market currency dealers taking part in Bloomberg’s weekly survey ask not to be identified because they are discussing trading outside price limits set by central bank.