Egypt sells fewer dollars at auction, pound inches up
Egypt sells fewer dollars at auction, pound inches up
The central bank imposed a new tighter trading band for the pound on Monday and it also surprised traders yesterday by announcing an extra auction on Thursday - both possible reasons for a rise in the pound on the interbank market after the sale.
But among unlicensed foreign currency dealers in Cairo, the pound is trading at least several piastres weaker than the official rate - signaling that the currency is still under pressure.
"Interbank trading is limited by the auction price. Banks can not exceed it... Also trading between banks is light," one trader, speaking on condition of anonymity, said.
By 1123 GMT, the pound had risen on the interbank market to trade at 6.690 to the dollar compared to 6.70 just before the result was announced.
The currency has lost around 8 percent since the bank changed its currency regime in December to avoid an outright currency crisis and figures on Tuesday showed Egypt's reserves of dollars and other hard currency have fallen to $ 13.6 billion - enough to pay for less than three months worth of imports.
Inflows of dollars to its economy have slumped after two years of violence that has scared off tourists and foreign investors alike and made it harder for many businesses to operate.
Qatar helped prop Egypt up with an injection of $ 4 billion in December, but the conclusion of a deal for a further $ 4.8 billion in International Monetary Fund support has been delayed by the latest round of political turmoil.
The reserves are down from $15 billion a month ago and some $ 36 billion on the eve of the uprising that toppled Hosni Mubarak from power two years earlier. Introducing the new system of foreign currency auctions in late December, the central bank warned that foreign reserves had already then reached a critical level.
The bank started by holding daily auctions before reducing the frequency to three a week. It said earlier this week it would hold auctions on Monday and Wednesday - a statement widely taken to mean that it would cut the frequency of auctions to two per week from three.
But yesterday, it said another auction would be held on Thursday. That helped support the pound.
"Thursday's action was a surprise, a nice one," another trader told Reuters.
The central bank did not say how much it would offer at the extra sale. This week's changes coincide with the arrival in office of new central bank Gov. Hisham Ramez.
The bank sold $ 49.6 million in what was its 18th sale of dollars since December yesterday. The cut-off price of 6.7020 Egyptian pounds to the US dollar, compared to 6.6920 at the previous auction on Monday.
The central bank offered $75 million at Monday's auction, accepting bids for $ 73.1 million.
Iran sanctions shadow falls on smaller German banks
- Some German companies plan to press on with Iran dealings
- German exports to Iran rose 15.5 percent last year
Germany’s biggest lenders have shied away from business with Iran after past penalties for breaching US sanctions, but smaller banks have leapt on opportunities afforded by the nuclear deal rejected by Donald Trump.
There are just months to go until a November deadline issued by Washington after the US president abandoned a hard-fought agreement that loosened business restrictions on the Islamic Republic in exchange for Tehran giving up its pursuit of nuclear weapons.
But some firms plan to press on in their dealings with Iran despite the looming threat of penalties.
“We will continue to serve our clients,” for now, said Patrizia Melfi, a director at the “international competence center” (KCI) founded by six cooperative savings banks in the small town of Tuttlingen in southwest Germany.
The center, which supports companies operating in sensitive markets like Iran or Sudan, has seen demand “rising sharply in the last few years, from firms listed on the Dax (Germany’s index of blue-chip firms), from all over Germany and from Switzerland,” she added.
German exports to Iran have grown since the nuclear deal was signed in 2015, adding 15.5 percent last year to reach almost €2.6 billion ($3.0 billion) after 22-percent growth in 2016.
Such figures remain vanishingly small compared with Germany’s €111.5 billion in exports to the US — its top customer.
Nevertheless, the KCI will “wait and see what the sanctions look like” before turning away from Iran, Melfi said.
Already, firms dealing with Tehran must take great care not to fall foul of US restrictions.
Transactions are carried out in euros, and the KCI does not deal with businesses that have American citizens or green card resident holders on their boards.
What’s more, products sold to Iran cannot contain more than 10 percent of parts manufactured in the US.
One of the most important inputs for the business is “courage among our managers” given the high risks involved, Melfi said.
Germany’s two biggest banks, Deutsche Bank and Commerzbank, avoid Iran completely after being slapped with harsh fines in 2015 over their dealings there, with Deutsche alone paying $258 million in penalties.
DZ Bank, which operates as a central bank for more than 1,000 local co-op lenders, is withdrawing completely from payment services there, a spokesman told AFP.
That left KCI to seek out the German branch of Iranian state-owned bank Melli in Hamburg.
Even that linkage could break if Iran’s biggest business bank appears on a US list of barred businesses as it has before.
Meanwhile, among Germany’s roughly 390 Sparkasse savings banks, business with the regime is mostly limited to producing documents linked to export contracts.
“We will be looking even more closely at those” in the future, a person familiar with the trade told AFP.
Elsewhere in the German economy, the European-Iranian Trade Bank (EIH) founded in 1971 is another conduit to Tehran.
Also based in Hamburg, it for now remains “fully available to you with our products and services,” the bank assures clients on its website, although “business policy decisions by European banks may result in short term or medium term restrictions on payments.”
Neither does the Bundesbank (German central bank) believe that much has so far changed for business with Iran.
“Only the European Union’s sanctions regime will be decisive,” if and when it is changed, the institution told AFP.
Any payment involving an Iranian party would have to be approved by the Bundesbank if things return to their pre-January 2016 state.
German banking lobby group Kreditwirtschaft has called on Berlin and other EU nations to clarify their stance — and to make sure banks and their clients are “effectively protected against possible American sanctions.”
KCI’s Melfi said time is running out for EU governments to act.
“Many firms just want to stop anything with Iran, since they can’t calculate the risk of staying,” she noted.
On Friday for the first time since the Iran nuclear deal came into force in 2015, China, Russia, France, Britain and Germany gathered in Vienna — at Iran’s request — without the US, to discuss how to save the agreement.