An Egyptian man stands next to a giant poster of U.S. dollars inside a currency exchange office in Cairo (Photo: AP)
The Egyptian pound continued to plunge after a dollar auction at the Central Bank of Egypt (CBE) on Thursday revealed 0.47 per cent plunge from a similar auction on the previous day.
The cut-off price at the auction was LE6.5099, down from LE6.4797 on Wednesday.
This is the eighth auction the CBE has held in its attempt to ease pressures on the local currency.
The auction saw $49.1 million sold to local banks, which was less than the $50 million it had initially offered.
Auction amounts have dropped from $75 million offered last week to $60 million on Sunday and $50 million on Wednesday and Thursday respectively.
Supporting the pound
Analysts say the decline sends the market a negative message on the Central Bank's ability to support the pound.
In the interbank market, CBE limits trades to a 0.5 per cent band above or below the weighted average of bids at the most recent currency auction.
At local banks and within currency exchange, the US dollar is sold at a price as high as LE6.57 or even LE6.6 after adding profit margins for traders.
By the end of December 2012, CBE said it would hold periodical currency auctions for local banks to help conserve the nation's net foreign reserve which the Central Bank said had fallen to critical levels.
New currency regime
Since CBE adopted a new currency regime on December 30, 2011, the Egyptian pound has dropped by at least six per cent.
The new regime gives 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.
Egypt's foreign reserves fell $21 million in December to reach $15.014 billion, a level that barely covers three months worth of imports.
Meanwhile, a delegation from the International Monetary Fund visited Cairo on Monday to renew talks about a $4.8 billion loan.
The government believes that the loan is essential for Egypt to help prop up its budget and contain the current currency crisis.