CAIRO: The Egyptian pound jumped 1.2 percent yesterday at a $1.3bn foreign currency sale — its biggest ever — as the central bank gambled a large chunk of its reserves to show that Egypt’s economic turbulence was coming to an end.
Since the 2011 popular uprising, foreign reserves have more than halved to less than $20bn, the budget deficit has widened to 14 percent of gross domestic product and the currency has lost more than 17 percent of its value against the dollar.
The bank has kept the pound rising since the army deposed Islamist president Mohammed Mursi on July 3, thanks to $12bn in aid from Gulf Arab countries.
It has rationed out dollars in $40m foreign currency sales three times a week since a run on the pound in December cost more than $2bn to bring under control.
Despite the sales and a more expensive dollar, businesses have racked up hundreds of millions in unfulfilled requests for foreign currency, forcing them to turn to a black market that has mushroomed in recent months.
“We’re covering all the backlog in the different sectors to help revive business,” a central bank official said. “This will definitely have a very positive effect on the industrial side, covering all the needs. So it was a very important move to make,” the official said.
The central bank allowed the pound to strengthen to 6.8952 pounds to the dollar at the $1.3bn sale, up from the cut-off price of 6.9752 pounds at the last regular sale on Monday. “The central bank is signalling that it believes the crisis is over. Rates are down, reserves are up and now the currency is rising,” Simon Williams, an economist with HSBC, said.
The sale was designed to finance strategic imports such as wheat, meat and cooking oil, the central bank said when it announced the sale on Tuesday, its largest since the $800m it offered in May. One currency dealer said the sale could eliminate the black market in dollars for several months.
Reuters
