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With dollars scarce, Egypt’s newly floated pound weakens
(REUTERS): Egypt’s pound weakened on Monday, its second day as a freely trading currency, and traders said they expected further declines as a severe dollar shortage in the banking system was stifling liquidity.
The central bank abandoned the pound’s peg of 8.8 to the dollar last Thursday, devaluing it by a third before unshackling the currency in an effort to attract inflows of capital and crush a booming black market in dollars.
The pound traded at an average of about 16.83 to the dollar on Monday, but movements were volatile and spreads wide as banks tested the interbank system for the first time after years of strict central bank control over the currency.
On Sunday the pound dropped to around 16 from 15.50, but interbank trading volumes were small as banks held on to the few dollars they had.
“Today we have done no deals. Yesterday there were conversations but we had no accepted transactions,” said a trader at one bank.
Import-dependent Egypt has struggled to attract dollars and revive the economy since a 2011 uprising that ended Hosni Mubarak’s 30-year rule drove away tourists and foreign investors, essential sources of hard currency.
As the currency peg drained its foreign reserves, the central bank introduced capital controls and rationed dollars, forcing importers to turn to the black market for their needs.
The pound reached a record low of 18 per dollar on the black market four days before the float as fears grew that the government would be unable to carry out reforms required for a $12 billion loan from the International Monetary Fund that was announced in August.
But importers and dealers who bought at the top of the market are unlikely to sell until the pound hits 18, bringing dollars flooding back into the banking system to stimulate trade and stabilise the currency.
“Anyone who speculated last week bought dollars at high rates and, so far, current rates do not cover the cost of purchase for most of them,” one banker said. “The rate will need to hit 18 Egyptian pounds or so to the dollar before they off-load, if they do.”
IMPORTERS’ WOES EASE
The slide on the black market prompted a boycott by frustrated importers who realised they would be unable to pass on the increased cost to customers struggling with 14 percent inflation. The importers’ boycott drove the rate back to 13 per dollar, giving the central bank an opportunity to drop the peg.
Some bankers and black market dealers predicted the black market would reopen, however, if banks proved unable to find enough dollars to supply the market.
Banks have been opening daily until 9 p.m. to accept dollar deposits and sales from Egyptians who had stashed dollars under their mattresses to hedge against inflation.
The government has placed public announcements on Egyptian radio calling on Egyptians to shun the black market, blaming it for fuelling inflation, and instead to use the banks.
It was not clear how many dollars had come into banks since the float. Some economists said the government was betting on clinching the agreement with the IMF, which should bring a fresh injection of hard currency into the economy.
“There will not be an active interbank market before banks cover their short positions and banks are currently afraid to cover their short positions in order not to make losses so they are buying and selling to clients,” said one banker.
Importers, who had been forced to source all their hard currency from the black market for months, said they had obtained dollars from the bank since the float.
“We got about 60 percent of our needs today and this is more than we have gotten in months. We were jumping for joy. If we keep getting these levels we can get a good pipeline going and it won’t be a problem,” said one commodity trader.
Another trader who received a large amount of dollars he had been waiting for said: “It’s getting a bit easier now to get yourself covered from the bank so it’s a good thing.”
EGX gains 17.5 bln EGP by end of Monday session
The Egyptian Stock Exchange (EGX) closed Monday transaction session on a collective rise with gains reaching 17.5 billion EGP, powered by Arab and foreign purchases, while Egyptians were mostly selling.
USD exchange rises to 17.26 EGP Monday: CBE
The Central Bank of Egypt (CBE) announced that the exchange rate of the U.S. Dollar has reached 16.41 EGP for purchase and 17.26 for sale on Monday.
Saudi Aramco to halt petroleum product shipment to Egypt “until further notice”- Egyptian official
(Reuters) – Saudi Aramco informed Egypt that it will be halting shipments of petroleum products to Egypt “until further notice,” an Egyptian official told Reuters on Monday.
The official said Aramco did not give a reason for halting the shipments.
“We have launched tenders to cover the needs for November,” the official said.
Egypt to submit letter of intent to IMF within three days -fin min quoted
(Reuters) Egypt will submit within two or three days a letter of intent to the International Monetary Fund for a $12 billion loan, Finance Minister Amr El Garhy was quoted as saying by the Al-Borsa newspaper on Monday.
He said the letter would include the government’s economic reform program.
“The first tranche of the loan will be released within two weeks of IMF board approval, and we hope that will be as soon as possible,” Garhy said.
Egypt’s deficit of trade balance declines by 3.1% in August: CAPMAS
Egypt’s deficit of the trade balance reached 37.8 billion EGP in August 2016 from 38.9 billion EGP in the same period of the previous year, with a decline by 3.1 percent, said the Central Agency for Public Mobilization and Statistics (CAPMAS) in a statement on Monday.
Saudi’s Savola says faces 171 mln riyal Q4 hit from Egypt pound float
(Reuters) Saudi Arabia’s Savola Group , the country’s largest food products company, said on Monday that the floatation of the Egyptian pound will hit its fourth-quarter results by 171 million riyals ($45.6 million).
It said that it had taken measures over the past year that significantly decreased the impact of the Egyptian pound devaluation on its business, without elaborating.
Savola’s products in the North African country include edible oil and vegetable ghee, sugar and pasta.
The central bank floated the pound on Thursday, abandoning a peg of 8.8 pounds to the dollar and letting the currency drift down to around 16 on Sunday. Many bankers think more depreciation is possible. ($1 = 3.7500 riyals)
Orange Egypt agrees 500 mln euro loan from parent for 4G license
Telecommunications firm Orange Egypt has agreed on a 500 million euro ($553 million) loan from its parent company to cover the cost of a license that will let it operate fourth-generation mobile phone services, the company said on Monday.
The loan matures in December 2020 and will have an interest rate of 7 percent, the statement said. Orange Egypt is a subsidiary of French group Orange.