Egypt CB holds exchange rate steady at FX ‘auction’

CAIRO, Dec 17, (RTRS): Egypt’s central bank kept the Egyptian pound steady at 7.7301 to the dollar on Thursday at its first foreign exchange sale since the US Federal Reserve raised interest rates.

Egypt, which depends on imported food and energy, is facing a dollar shortage and mounting pressure to devalue the pound as a black market in dollars flourishes.

The rise in the US interest rate is likely to add further downward pressure on the domestic currency unless the central bank follows suit at its monetary policy meeting due to finish later on Thursday.

The central bank sold $39.4 million at a cut off price of 7.7301 to the dollar at its regular sale on Thursday.

Though the central bank has sought to inject additional forex liquidity into the market over the past month, the gap between the official and black market rates remains large.

On the parallel market, the dollar was little changed at 8.58 pounds on Thursday, a black market trader said.

Egypt has been starved of foreign currency since a popular uprising in 2011 ousted then-president Hosni Mubarak and hit tourism and foreign investment.

Central bank forex reserves have tumbled from $36 billion before the 2011 uprising to $16.4 billion in October, as it has spent dollars on food and petroleum imports and sought to defend the pound at an artificially strong level.

In February, the central bank imposed capital controls, limiting dollar-denominated deposits to $50,000 a month in an attempt to fight the black market.

The move caused problems for importers, which could no longer source enough foreign currency to pay for their goods.

On Sunday, Egypt’s central bank injected $750 million to $1 billion into the banking system in a surprise operation aimed at clearing imports, the head of the Egyptian Federation of Industries Mohamed El Sewedy told Reuters.

Last month the central bank injected an initial $1 billion in a similar operation.

Pressure is rising on Egypt to raise interest rates to support the pound, particularly in light of the Fed hike.

But benchmark deposit and lending rates are already high at 8.75 and 9.75 percent respectively. The central bank has so far held back for fear of stifling much needed growth and investment.