Egypt's Central Bank (CBE) sold $198.1 million to local banks in a $200 million exceptional auction earlier Monday at a "more flexible exchange rate" of EGP 8.85 per dollar against 7.73 in previous auctions, the bank stated on its website.
The depreciation in the local currency came five days after the CBE lifted last year’s limits on foreign currency dealings (deposits and withdrawal) by individuals and corporations in an attempt to bolster the people’s confidence in the banking sector and to eradicate the black market.
“The CBE decided to adopt a more flexible policy to heal the exchange rate distortions and to sustainably and regularly restore the circulation of foreign currency in banks,” read the Arabic statement on the bank’s website.
After the CBE's new pricing, banks are currently allowed to sell the dollar at EGP 8.95, which tightens the gap between the rates of the official and the parallel markets, according to Al-Ahram Arabic news.
The bank expects the recent decisions to positively affect the Egyptian economy and to help attract foreign investments, pushing the country’s international reserves to reach $25 billion by the end of this year.
The CBE governor Tarek Amer denied last month in a televised interview that Egypt may only consider floating its currency if foreign reserves range between $25 billion and $30 billion.
An anonymous senior official at CBE told Ahram Online that the decision is considered "a maneuver” to combat the informal market so that the value of the Egyptian pound will recover again against the dollar.
The foreign reserves recorded $16.53 billion by the end of February.
Egypt has been facing a foreign currency crunch since the political upheaval following the 2011 uprising drove away foreign investors and tourists, the country's main source of dollars.
The CBE has already taken several measures over the past few months to curb non-essential imports to reduce the total bill by $20 billion by the end of 2016.
Egypt imported $61 billion worth of goods in the fiscal year that ended June 30, according to official data.