Egyptian currency sinks to new low

CAIRO: The Egyptian pound slid to a fresh record and debt insurance costs surged on Wednesday despite new central bank rules aimed at slowing the currency’s fall and the depletion of its foreign exchange reserves.
The economy sank into crisis after the fall of Hosni Mubarak in 2011 but a new bout of political turmoil in the last month has sent Egyptians scrambling to swap pounds for US dollars.
The finance minister said on Wednesday he expected the currency to stabilize soon while one banker said the central bank had narrowed the band for interbank transactions in another attempt to slow the pace of depreciation.
The pound fell to about 6.390 to the US dollar on the interbank market. It had been trading at about 6.185 before a regime of auctions and administrative controls were introduced by the central bank on Sunday to slow the pound’s fall.
Data from Markit showed Egypt’s 5-year credit default swaps (CDS) jumped 27 basis points to 4-1/2 month highs from the previous close to 515 bps.
“I expect that within a month or a month and a half matters will stabilize completely,” Finance Minister Mumtaz Al-Saeed said in televised remarks posted on YouTube.
“I will not say that we will go back to six pounds, though this is a possibility. But at least this surge in the dollar will never reach seven pounds.”
But some economists said this was an ambitious target.
Neil Shearing, an economist at Capital Economics, predicted the pound exchange rate at 7 per dollar by the end of 2013.
“The most important issue for investors is how the pound will get there, whether the central bank can manage it in a transparent manner or will there be a messy devaluation,” he said.
The central bank had long pegged the currency to a tight band against the dollar. The banker, who did not want to be named but who works in the treasury of a Cairo-based bank, said the central bank had narrowed the interbank currency trading band to plus or minus 0.5 percent from the previous 1.0 percent.
At its third auction under the new system on Wednesday, the bank sold $75 million, accepting 6.3510 pounds as its lowest price for one dollar.
Banks were closed on Tuesday for New Year’s Day.
Egypt’s foreign exchange reserves have fallen sharply and economists say the country cannot afford to continue daily $75 million auctions indefinitely.
In November, Egypt’s foreign reserves fell by $448 million to $15 billion, equal to barely three months of import cover.
The central bank said on Saturday that foreign reserves had fallen to a critical level. Reserve figures for end-December are due to be released in the first week of January.