CAIRO: The Egyptian pound hit the 4th official price low Wednesday as the Central Bank of Egypt (CBE) let it weaken to 7.34 per U.S. dollar at a regular auction yesterday, compared to 7.29 EGP/dollar Tuesday, amid expectation of extended slip in the coming days.
Egypt’s local currency lost ground for a 4th day in a row against the dollar, reaching 7.19 and 7.24 on Sunday and Monday, and respectively. This is the fourth depreciation this week and the lowest since auctions began in December 2012.
“The bank offered $40 million and sold 38.4 million at a cutoff price of 7.29 EGP per dollar,” the central bank posted on its website.
“The dollar was sold at 7.85 EGP on the black market Wednesday, down from 7.90-7.95 a day earlier,” a trader told The Cairo Post. He attributed the decline to CBE FX auctions this week, expecting the dollar to slip in the black market in the coming period.
The bank’s move to let the Egyptian pound depreciate starting Sunday came shortly after its Monetary Policy Committee (MPC) decided last week to cut key interest rates by 50 basis points.
Such a move after applying reforms on a subsidy system and raising fuel prices by 78 percent in June means that Egypt’s government is applying the International Monetary Fund’s (IMF) recommendations after a mission concluding the 2014 Article IV consultations in November.
Economist and financial analyst Hany Tawfik welcomed the bank’s “delayed decision” to depreciate the local currency against the dollar, calling on the CBE to adopt a “controlled” local currency floating policy until having enough foreign reserve to let supply and demand decide the real value of the Egyptian pound.
Tawfik, who heads the Egyptian Private Equity Association, told The Cairo Post: “As the Economic Summit approaches, the Central Bank should explain in an official statements the reasons behind his latest step to assure foreign investors that Egypt is adopting a flexible foreign exchange policy.”
Importers will suffer from sharp depreciation of local currency, but local industry will boom eventually as importers will have to depend more on home produced raw materials instead of importing, he said.
Egypt’s exports, tourism and FDI will deliver a boost from the pound depreciation, said Tawfik, who expected “an upcoming leap in structural reforms in the coming period.”
The hike of the dollar in the black market until Tuesday was mainly driven by the growing concerns and speculations, but CBE’s dollar auctions helped ease pressure on the hard currency in the black market, added Tawfik.
The economist finally urged the central bank to order banks to provide importers with needed documentary letters of credit in return for higher taxes on luxury and unnecessary imports rather than offering only 25 percent of the needed dollar credit.