Egyptian President Mohamed Morsi and Central Bank's governor Farouq El-Oqda (Photo: Reuters)
The new monetary foreign exchange regulations, enacted by the Central Bank of Egypt (CBE) on Sunday, will help curb speculation on the US dollar in the domestic market and maintain a low rate of inflation, said the country’s top bankers.
CBE sold $75 million to local banks on Sunday, in an auction at a cut-off price of LE6.2425 with a maximum of $11 million per bank. Providing local banks with foreign currency through periodical auctions is a new mechanism introduced by the Central Bank aimed at conserving foreign reserves, which it says has reached a critical level.
Tareq Amer, the CEO of the National Bank of Egypt - the largest in the country, spoke to Ahram Online, explaining the impacts of the new method. Following the first auction on Sunday, the Egyptian pound staged a surprise drop to reach LE6.36 against the US dollar in commercial banks.
According to Amer, only banks in need of dollars will have the opportunity to join the CBE’s auction and they will not be able to exceed a ceiling of 15 per cent of the total offered amount from the CBE.
“CBE will rationalise the dollars’ amount going out of its treasury, to curb speculation, maintain the exchange rate, the foreign reserves and inflation,” he told Ahram Online
CBE also announced several procedures to pre-empt a looming foreign currency crisis, including putting a limit on corporate cash withdrawals at $30,000 per day and placing a one to two per cent administrative fee on individuals who purchase foreign currencies.
The state-owned statistics body showed in December that Egypt's annual inflation has dropped to 4.1 per cent in November, its lowest level since March 2006
For his part, Ismail Hassan, the former governor of the Egyptian Central Bank told Ahram Online that the new regulations will support and strengthen the supply of dollars in the market because the new rules also put a limit on the amount of US dollars banks can hold. They are not allowed to hold long positions in US dollars of more than one per cent of their capital compared to 10 per cent before.
“Just one per cent will be held by the bank and the rest – nine per cent – will be traded through interbank transactions or from and to the central bank (Forex Auctions) or the private sector,” Hassan said.
The two per cent-fees imposed on individuals and currency exchange shops is meant to curb black market speculation on the currency price.
“The private sector will reduce the import of luxury goods due to the high value of the dollar,” he commented.
Despite the sudden jump in the value of the USD versus the EGP, Hassan sees the pound regaining its lost value in the coming weeks through supply and demand forces in the free currency market.