CAIRO/LONDON: ARAB NEWS
Published — Friday 4 January 2013
Last update 4 January 2013 1:00 am
Egypt dipped deeper into its rapidly shrinking currency reserves yesterday, fighting to slow a sliding pound which is likely to push up inflation and risks reigniting popular unrest.
Economists warned that the central bank had little room left for maneuver with its readily available foreign currency reserves enough to cover just over two months of Egypt's import bill, well below levels in many of its emerging market peers.
The pound slid further yesterday at the central bank's fourth auction of foreign currency, with $ 74.9 million sold to banks at a cutoff price of 6.386 pounds, weaker than Wednesday's 6.351 to the dollar.
Egypt's currency has lost about 10 percent against the dollar since the start of 2011, just before the Arab Spring unrest spread to the country. But about a third of that has come this week alone, since the central bank began auctioning $ 75 million a day out of its reserves on Sunday.
“The pound is extremely vulnerable,” said Raza Agha, chief economist for the Middle East and Africa at VTB Capital. “This auction system they should have done months ago to stem the decline in reserves rather than using them to defend an arbitrary level of the pound, which has gotten them to where they are now.”