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Egyptian pound weakens to 7.73 at official auction

Reuters , Sunday 5 Jul 2015
(Photo: Ahram Online archive)
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Views: 1485

Egypt's central bank allowed the Egyptian pound to depreciate further on Sunday, having let it weaken for the first time in five months last week.

The bank said it offered $40 million and sold $39.6 million at a cut-off price of 7.7301 pounds per dollar at a regular auction, sending the currency to a new low since auctions began in December 2012.

The central bank had allowed the pound to weaken on Thursday to 7.6301 from the 7.5301 at which it had held for five months.

"I think we are heading for further devaluations; we still have two auctions this week and I think we are going to see weakening in the pound at both," said Mohamed Abu Basha, an economist at EFG-Hermes in Cairo.

The central bank holds foreign exchange auctions on Sunday, Tuesday and Thursday every week.

Allowing the pound to weaken in a controlled manner could boost exports and attract further investment, analysts said.

At the same time, a weaker currency could raise Egypt's large bill for imports, which many Egyptians rely on for fuel and food staples.

"We have foreign-exchange shortages and one of the key ways to resolve this is to weaken the pound to a more 'fair' price from the point of view of investors," Abu Basha said.

"Whether this will attract capital or not will depend on how much [the central bank] weakens the pound."

As well as allowing the pound to depreciate, Egypt has taken steps to eliminate a once-thriving currency black market, including a cap on dollar-denominated bank deposits.

One currency trader said the pound was changing hands at 7.87 to the dollar, falling within the band set by the central bank.

The central bank gave banks permission in January to trade dollars up to 0.10 pounds more or less than the official rate, with an extra 0.05 pounds for currency exchange bureaus.

Egypt is trying to rebuild its economy after four years of turmoil with a series of investor-friendly reforms, but hopes of a quick turnaround have been hit by continuing violence. 

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