Egyp­tian banks of­fer mar­ket rates for dol­lar

In­ter­bank trad­ing be­gins next week

Kuwait Times - - BUSINESS -

Hun­gry for dol­lars af­ter the cen­tral bank floated the pound on Thurs­day, Egyp­tian banks are of­fer­ing mar­ket rates for the green­back as they try to build their re­serves be­fore in­ter­bank trad­ing be­gins in earnest next week. But some bankers warned that a back­log of de­mand from busi­nesses could re­vive the black mar­ket if the cen­tral bank does not in­ject dol­lars into the bank­ing sys­tem to help smooth the tran­si­tion to a float­ing cur­rency.

One of the ob­jec­tives for aban­don­ing the Egyp­tian pound’s US dol­lar peg was to close a black mar­ket for dol­lars that had boomed af­ter the cen­tral bank im­posed cap­i­tal con­trols last year. The pound had slid to a record low of 18 per dol­lar on the un­of­fi­cial mar­ket last Sun­day.

“We bought dol­lars from the bank­ing sys­tem at rates be­tween 14.7 and 16 so it’s al­ready work­ing ... We closed the deal for over $1 mil­lion and got some of it on Thurs­day and the rest we are get­ting on Sun­day,” said one com­mod­ity trader.

“I hope the black mar­ket dis­ap­pears. There’s no rea­son for it to con­tinue now banks are buy­ing at equi­lib­rium prices.” Egypt al­lowed its cur­rency to fall from 8.8 to the dol­lar to about 14.65 in a sin­gle day on Thurs­day, ditch­ing the peg that had drained the cen­tral bank’s for­eign ex­change re­serves and forced it to ra­tion dol­lar sup­plies.

On Thurs­day, banks sold dol­lars mostly to busi­nesses, caus­ing con­fu­sion among or­di­nary cus­tomers. Though banks were open to dol­lar de­pos­i­tors and sell­ers over the Fri­day-Satur­day week­end, no dol­lars were on of­fer to re­tail clients. The cen­tral bank be­gan Thurs­day’s dra­matic move by de­valu­ing the pound to 13 per dol­lar be­fore al­low­ing it to slide fur­ther in a $100 mil­lion sale and ditch­ing the peg.

Banks will be­gin freely trad­ing cur­rency on the in­ter­bank sys­tem from to­day. Some bankers were dis­ap­pointed the cen­tral bank had not flooded the sys­tem with hard cur­rency to help sta­bilise the pound in the early weeks of trade, say­ing the black mar­ket will re­turn if banks are un­able to meet pent-up de­mand from busi­nesses.

Black mar­ket traders said they were of­fer­ing dol­lars on Fri­day for 16.75-16.95 pounds and buy­ing for 16.25-16.30, though vol­umes were low. “If the cen­tral bank didn’t in­ject enough dol­lars for the banks to start sell­ing at a higher rate, like in the 20s even, then the black mar­ket will be back to cover peo­ple’s de­mands,” said an­other com­mod­ity trader.

“Ei­ther way this de­pends on the IMF loan be­cause the liq­uid­ity of dol­lars in the cen­tral bank is not enough.” Egypt reached a pre­lim­i­nary deal with the In­ter­na­tional Mon­e­tary Fund in Au­gust for a $12 bil­lion loan pro­gram, but has yet to win fi­nal ap­proval. The IMF has wel­comed the float. Its Egypt Mis­sion Chief Chris Jarvis said the loan would go to the board in weeks. Most bankers and traders in­ter­viewed did not see the black mar­ket re­turn­ing as long as the cen­tral bank re­sists any temp­ta­tion to in­ter­vene and lets the mar­ket clear via the banks. Allen San­deep, head of re­search at Naeem Bro­ker­age, said the cen­tral bank had al­lowed the pound to de­pre­ci­ate to en­tice the dol­lars cur­rently held out­side the banks back into the sys­tem. Able to get twice as much for them on the black mar­ket, Egyp­tians re­fused to sell dol­lars at the bank be­fore the float. “It makes sense for them to keep it weak for now as their only source for dol­lars... is peo­ple com­ing in and de­posit­ing. — Reuters

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