CAIRO — Egypt’s pound weakened to the lowest on record after the central bank held its first daily foreign-exchange sale to help protect what’s left of the country’s currency reserves and prevent a disorderly devaluation.
The move to control the supply and demand of dollars follows the government’s delay in securing a $4.8 billion International Monetary Fund (IMF) loan, which fuelled concerns the regulator may abandon its policy of an orderly exchange market, according to investment bank EFG-Hermes Holding SAE.
The loan, delayed by unrest in the run-up to a constitutional referendum that ended Dec. 22, was seen as key to boosting confidence in Egypt’s economy, which has been battered by the after-effects of last year’s ouster of Hosni Mubarak.
While Egyptian officials, including President Mohammed Morsi and his premier, dismissed talk of the nation being on the brink of bankruptcy, the efforts by the government, including imposing controls on the amount of dollars that can be brought in or taken out, fed into broader worries.
Some exchange houses in Cairo stopped selling dollars to customers before the decision, while others said they didn’t have enough supply to meet a rush by customers to sell pounds.
“What we’re seeing now is the real price of the pound,” Wael Samir, manager of Al-Tawheed Exchange in Cairo, said in an interview. “There has been huge demand and not enough supply over the past few days. People were expecting a devaluation and were trying to buy dollars to hold for a better rate.”
The central bank yesterday sold $74.9 million to banks at a cut-off price of 6.2425 a dollar, a 0.9 percent depreciation from the Dec. 28 closing price, according to data compiled by Bloomberg.
The currency weakened to 6.3050 as of 4:03 p.m. in Cairo, Citibank Egypt prices on Bloomberg show.
The auction came as Prime Minister Hisham Qandil said the country would invite the IMF next month to Cairo, with an eye on resuming talks on the loan.
Echoing Morsi, who had called on the opposition to work in tandem with the government to restore stability, Qandil said the government would start a national initiative to boost the economy.
The new push will focus on building broad public support for the economic program presented to the IMF. The hope is there will be “no fundamental changes” to the program which had won backing from the fund, he told reporters.
Standard & Poor’s, citing political unrest, lowered Egypt’s credit rating to the same junk level as Greece and Pakistan on Dec. 24, raising the government’s borrowing costs.
The government canceled the sale of 6 billion pounds ($970 million) in six-month and one-year treasury bills Dec. 27. It raised 1 billion pounds selling nine-month notes today, missing a 3 billion-pound target, central bank data on Bloomberg show.
Qandil downplayed concern that Egypt would declare bankruptcy, and said the nation’s rocky transition has left policy makers with no choice other than to rely on funding from abroad to help bridge the deficit.
Aid and loan pledges from the World Bank, the European Union and the African Development Bank have been “stalled” pending a final agreement with the IMF, Planning and Cooperation Minister Ashraf el-Arabi said in an interview in Cairo.
In announcing the auction, the central bank called on Egyptians to “ration” their foreign currency use. It said the auction would “complement and support” the dollar interbank market, which was introduced by Governor Farouk El-Okdah after a devaluation in 2003 when the country dropped the peg to the dollar.
The interbank market was aimed at easing access to foreign exchange and helped to put an end to the so-called black market for currencies.
The pound, subject to a managed float, weakened 1.2 percent this month before the auction. Forward contracts show investors expect a 15 percent drop in 12 months.
The auctions “are one of the central bank’s final defense lines to prevent a disorderly devaluation of the pound as it awaits the resumption of negotiations with the IMF,” Mohamed Abu Basha, a Cairo-based economist at investment bank EFG-Hermes Holding SAE, wrote in a report before the sale.
They “will give a clear and transparent level of pricing for the local currency that market participants can monitor,” he wrote.
Managers at several currency exchanges said they weren’t aware of the results of the auction and were unclear what had precipitated the decline, reflecting the broader unease in the country even as officials have pledged greater transparency.
“People are abandoning the pound for currencies like the pound sterling, the euro or the dollar,” said Samir, “If things continue like this, there will definitely be a black market emerging” like that in 2003.
The worry is also that the weakening of the pound against the dollar will “create a wave of inflation,” said Mohamed Kotb, regional asset management director at Cairo-based Naeem Financial.
“I don’t blame the central bank for this, I blame the government for bringing us to this stage,” he said by phone. “We didn’t conclude the IMF agreement and the consequences are bad.”
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