CAIRO: Egypt’s central bank let the pound weaken yesterday for the second day running, a move analysts said was aimed at stamping out a thriving black market as inflation concerns ease.
The bank allowed the pound reach 7.24 pounds per dollar at yesterday’s auction, its weakest level since dollar sales were introduced in December 2012, and was expected to let it depreciate further to close the gap with the unofficial rate that has been widening for months.
The central bank made a similar move in the first half of 2014, but had held the pound steady at 7.14 for over six months amid what currency traders said was concern that further depreciation would fuel inflation.
Inflation spiked in Egypt after the government slashed energy subsidies in July, prompting the central bank to raise rates by 100 basis points that month.
The rates at which banks are allowed to trade dollars are determined by the results of the central bank sales, giving it effective control over official rates, whereas many businesses and ordinary people use the black market.
It introduced a fourth weekly auction in December to ease mounting currency pressure, but this proved ineffective. Foreign reserves fell to $15.33bn December after Egypt repaid a Qatari deposit and defended the pound.
Expectations the bank would devalue had grown since it announced a surprise 50-basis-point cut in benchmark interest rates on Thursday, saying plummeting global oil prices had eased the inflation outlook.
Egypt is an energy importer and a major wheat importer. Global commodities fluctuations can have a major impact on its balance of payments and inflation, affecting rate decisions.
Reuters
