The Egyptian pound dropped 0.3 per cent against the US dollar at the latest currency auction by the central bank on Tuesday.
The Central Bank of Egypt (CBE) started holding US dollar auctions to local banks to ease the pressure on the country’s foreign currency reserves. On Tuesday, the cut-off price was LE6.5500 to the dollar, a slight drop below the auction held on Sunday.
Ten such auctions have been held since the start of 2013, during which pound has dropped more than 6 per cent. The bank is holding three auctions this week, instead of daily sales.
According to Reuters, the weighted average price of the pound on the interbank market fell to 6.5827 pounds from 6.5624 on Monday. The central bank limits trades to a 0.5 per cent band above or below the weighted average of bids at the most recent currency auction.
“The solutions the central bank is utilising are just temporary and have a limit,” former finance minister Samir Radwan said on Monday night in a television interview.
“Resorting to the auction system is the central bank’s last card,” he added.
The new currency regime gives the CBE more control over the price of the domestic currency through managing the supply of the US dollar in the market by altering the frequency and size of auctions.
Over the last two years, CBE has spent close to $20 billion of reserves to prevent a sharp devaluation of the pound. The bank declared that it could not continue doing so as reserves had fallen to a “critical” level.
Egypt's foreign reserves fell $21 million in December to reach $15.014 billion, a level that barely covers three months worth of imports.
Radwan indicated that the crisis could be overcome if the state of the Egyptian economy improves.
The deterioration of key sectors such as tourism and a general slowdown in economic activity since the revolution in January 2011 are causing Egypt’s latest financial troubles.
The former minister added that securing the International Monetary Fund (IMF) loan is essential for restoring confidence in the Egyptian economy and prompting investors and international lenders to help Egypt.
Radwan kick-started loan negotiations with the IMF in April 2011.