Egypt’s pound weak­ens as dol­lar de­mand surges

Kuwait Times - - BUSINESS -

The Egyp­tian pound weak­ened sig­nif­i­cantly yes­ter­day as banks scram­bled to meet a surge in de­mand for dol­lars and the cen­tral bank held bench­mark in­ter­est rates steady. The pound was trad­ing at be­tween 17.25 and 17.75 against the dol­lar by 1138 (0938 GMT), af­ter clos­ing at about 16.05 on Satur­day. “There is a lot of pent up de­mand (for dol­lars) ... There are peo­ple who are will­ing to buy at any price and they are mainly im­porters of non-es­sen­tial goods,” said one banker. An­other banker echoed those com­ments, say­ing the pound had also weak­ened on the par­al­lel mar­ket where prices were roughly in line with those at the banks.

Yes­ter­day’s drop comes af­ter six bankers told Reuters over the week­end that the cen­tral bank had in­formed them ver­bally that they could sup­ply dol­lars to im­porters of non-es­sen­tial goods pro­vided they pri­or­i­tize ba­sic im­ports and ob­tain the dol­lars they need on the in­ter­bank mar­ket. Egypt floated the pound on Nov. 3 and raised in­ter­est rates by 300 ba­sis points in a dra­matic move wel­comed by busi­nesses as the key to un­lock­ing in­vest­ment.

It de­val­ued the cur­rency by about a third from the for­mer peg of 8.8 against the dol­lar and al­lowed it to drift lower. Egypt’s dol­lar peg had drained the cen­tral bank’s for­eign re­serves, which have been hit by re­duced for­eign in­vest­ment fol­low­ing po­lit­i­cal tur­moil in the past few years, forc­ing the bank to im­pose cap­i­tal con­trols and ra­tion dol­lars. That prompted des­per­ate im­porters to turn to a bur­geon­ing black mar­ket where the dol­lar at one point fetched more than twice its of­fi­cial value. A se­vere short­age of dol­lar liq­uid­ity when markets opened for the first time af­ter the float had re­sulted in low vol­umes and saw the pound weaken to 18 ver­sus the dol­lar.

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