Egypt’s central bank governor denied any intention of officially devaluing the Egyptian pound on Wednesday after it hit a record low in the country’s currency black market.
The pound dropped to around 11.3 against the US dollar on Egypt’s sprawling parallel market on Wednesday, according to traders surveyed by local and international media outlets.
Governor Tarek Amer blamed the “exaggerated” and “unjustified” rise in the exchange rate on speculation, he said in a statement to state news agency MENA on Wednesday.
Last month, the Central Bank of Egypt (CBE) let the pound weaken to its lowest in 13 years after years of keeping the exchange rate tightly controlled. It pumped large sums of dollars into the banks and announced it would adopt a more flexible exchange rate regime in an effort to eliminate the black market.
The move was praised by international credit rating agencies and financial institutions and temporarily closed the gap between the official and black market rates, but the CBE has since let the pound rise slightly to 8.78 against the dollar and kept the rate steady at its auctions of foreign currency to banks.
Mohamed El-Abyad, head of Egypt's Foreign Exchange Association, blamed the spike on “aggressive speculation” on the value of the dollar and widespread hoarding of the greenback among rumours of an impending devaluation, in statements to Al-Ahram’s Arabic website.
Amer denied any intention to further devalue the pound.
“It is a message that [Amer] will not yield to pressure from the black market,” Ziad Waleed, economist at Cairo-based Beltone Financial, told Ahram Online.
Egypt’s central bank will not be able to definitively get the black market under control without fresh currency inflows from abroad, whether from tourism revenues, Foreign Direct Investments, or the sale of government debt, said Waleed.
“Even if the central bank lets the currency depreciate on a daily basis to catch up with the black market in a cat and mouse game, it will not be able to fully eliminate the black market rate unless foreign currency inflows from outside Egypt pick up,” he said.
Egypt’s revenues from tourism, a main source of foreign currency, have plummeted since the crash of a Russian commercial airliner in Sinai last October, while its export revenues and foreign investment inflows have lagged.
The central bank expects investments in fixed income instruments to reach $5 billion before this summer, Amer said in a televised interview, after yields on government debt jumped following the March devaluation.
The central bank is also less likely to let the currency weaken before the Islamic holy month of Ramadan to avoid a hike in food prices, said Waleed.
Egypt relies heavily on imported wheat and other staples to feed its population of 90 million.
In a televised speech last week, Egyptian President Abdel Fattah El-Sisi vowed to keep the prices of basic commodities for Egypt’s poor under control ahead of Ramadan.
"There will be no rise in the prices of basic goods, whatever happens to the [value of the] dollar... and the army and the state are responsible for this," El-Sisi said during a televised meeting with public figures and officials at Cairo's Ittihadiya Presidential Palace.
The Central Bank of Egypt raised interest rates by 1.5 percentage points days after the devaluation to combat inflation, but while the country’s annual headline inflation eased to 9.2 percent in March, the monthly consumer price index rose by 1.4 percent as some food commodities saw price increases, such as rice, meat, poultry, vegetables, fruits in addition to pharmaceuticals, according to official figures released last week.