Egypt sells fewer dollars at auction, pound inches up



REUTERS

Published — Friday 8 February 2013

Last update 7 February 2013 12:57 am

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CAIRO: Egypt's central bank sold fewer dollars to banks yesterday than in a previous auction and the pound gained for the second time in three days as authorities battle to halt a slide of its currency into crisis.
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.

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