Cen­tral bank en­lists the help of state-owned com­mer­cial banks to keep pound steady

The Gulf Today - Business - - FRONT PAGE -

CAIRO: Egypt’s cen­tral bank (CB) has en­listed the help of state-owned com­mer­cial banks to keep the Egyp­tian pound from weak­en­ing against the dol­lar by get­ting them to sup­ply any ex­tra hard cur­rency the mar­ket may need, bankers and economists said.

The pound has held steady in a nar­row band of 17.78-17.98 to the dol­lar over the last six months - even as for­eign in­vestors have fled emerg­ing mar­kets around the world, in­clud­ing Egypt’s.

The cen­tral bank is not able to sup­port the cur­rency di­rectly. In 2016 it aban­doned an ex­pen­sive cam­paign to sup­port the pound, let­ting it float freely un­der re­forms that per­suaded the In­ter­na­tional Mon­e­tary Fund (IMF) to lend Egypt $12 bil­lion.

Since then, the IMF has urged Egypt to keep its ex­change rate flex­i­ble, ar­gu­ing this will in the long run keep in­flows of for­eign cap­i­tal more stable. But Cairo is keen to avoid spec­u­la­tion against the cur­rency and to curb in­fla­tion. An­nual ur­ban price in­fla­tion hit 17.7 per cent last month.

Rather than re­turn­ing to di­rect in­ter­ven­tion, the cen­tral bank is en­list­ing the help of state-owned com­mer­cial banks to keep the pound steady, sev­eral bankers and economists said.

The cen­tral bank did not re­spond to ques­tions on the mat­ter.


As port­fo­lio funds flow out - for­eign own­er­ship of Egyp­tian Trea­sury bills and bonds fell $8 bil­lion in the six months to the end of Sep­tem­ber to $13 bil­lion - sup­plies of dol­lars needed to sup­port the pound are mainly com­ing from the bank­ing sys­tem, rather than from the cen­tral bank’s re­serves.

The two big­gest state-owned com­mer­cial banks seem to be tak­ing up most of the slack, of­ten step­ping into the in­ter­bank mar­ket to­wards the end of the day to fill out­stand­ing re­quests for dol­lars, seven bankers and sev­eral economists told Reuters.

“I could be un­able to fill an or­der un­til 2 or 3 p.m., and then all of a sud­den the Na­tional Bank of Egypt and Banque Misr come to the res­cue,” one banker told Reuters. “So they’ve been sup­ply­ing dol­lars in that way since the flota­tion.”

The two state banks could not im­me­di­ately be reached for com­ment.

In the in­ter­bank mar­ket, NBE has been of­fer­ing to sell dol­lars for 17.88 pounds and Banque Misr for 17.89 pounds, while pri­vate banks of­fer to buy them for up to 17.95. But bankers say the state banks rarely if ever make trades at 17.88-89, sell­ing dol­lars closer to the cen­tral bank’s fix­ing rate of about 17.91.

“The Na­tional Bank of Egypt and Banque Misr - more so with NBE - sup­port the mar­ket when things get a bit dry,” a sec­ond banker said. “They ba­si­cally come to the res­cue and start sell­ing dol­lars to banks that need them.”

Bankers say the cen­tral bank also some­times calls up pri­vate banks to in­quire why they let the pound weaken, a move which the bankers take as a sign of dis­plea­sure.

Some ma­jor emerg­ing economies such as China or In­dia use sta­te­owned banks to step in and help smooth cur­rency move­ments when mar­kets are un­der pres­sure.

But these coun­tries al­low con­sid­er­able move­ment in ex­change rates, whereas Egypt has been hold­ing its ex­change rate steady.

The im­pact of the pol­icy can be seen in a sharp de­cline in the net for­eign as­sets of the com­mer­cial bank­ing sys­tem, which plunged by $8.5 bil­lion in the six months to the end of Sep­tem­ber to $12.2 bil­lion.

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