Egypt strengthens currency by 0.20 pounds against dollar
The move surprised bankers who had been expecting a depreciation
Egypt's central bank strengthened its currency by 0.20 pounds to reach 7.7301 to the dollar on Wednesday, a move that surprised bankers who had been expecting a depreciation.
Egypt, which is heavily dependent on imports for food and energy, has been under pressure to devalue the currency it maintains in a narrow band through regular dollar auctions.
It has allowed the currency to weaken gradually this year. It last let the pound weaken to 7.9301 pounds against the dollar in October, but that remains far from about 8.7 pounds on the black market.
In February, the central bank introduced strict capital controls to crush a thriving black market in dollars. The move partly succeeded on that front but has created a dollar shortage and made it difficult for companies to open letters of credit and pay for imports which have been building up at ports.
But last week Egypt's top two state banks, Banque Misr and the National Bank of Egypt (NBE), said they would provide dollars to cover import demands for businesses.
Many private bankers saw this as a central bank-inspired move to reduce pressure on the pound.
One broker, who deals closely with exchange rooms at Egyptian banks, said that Wednesday's dollar offer followed a $1.8 billion infusion to banks last week to help them clear backlogs in demand for dollars from importers.
However, bankers and economists were surprised by Wednesday's move and struggled to explain where the additional dollars were coming from given the meagre dollar reserves at hand. Egypt's foreign exchange reserves are currently at about $16.4 billion - enough to cover just three months of imports.
"I am not sure why this is taking place now. It is very confusing for us and the market," said one Cairo-based economist. "This is something I didn't expect would happen in 2016 let alone 2015. Where is this money coming from?"