Central Bank auctions off $1.5 billion at stronger rate of LE8.78

Egypt’s Central Bank auctioned off US$1.5 billion in an exceptional auction Wednesday, selling dollars at LE8.78, state news agency MENA reports.

On Monday, the Central Bank weakened the pound’s exchange rate to LE8.85 to the dollar after holding it steady at LE7.73 for months. The bank maintained the LE8.85 rate in its Tuesday auction before strengthening the pound by seven piastres Wednesday.

Wednesday marks the second time the pound’s official rate has strengthened since Tarek Amer was brought back the the Central Bank. In November — after Amer’s predecessor Hesham Ramez announced his resignation but before Amer officially took over the post — the pound was strengthened from LE7.93 to LE7.73. At the time, analysts interpreted the move as a sign that the incoming governor hoped to encourage two-way bets on the pound, shaking the perception that the pound is in a continuous and inevitable slide against the dollar.

In a Monday press release, the bank said it decided to “adopt a more flexible exchange rate regime that better reflects the underlying forces of supply and demand and, in turn, lead to greater transparency and foreign exchange liquidity through attracting greater investments and the correction of asset prices.”

The devaluation followed other recent steps to ease currency restrictions, including lifting dollar deposit caps for importers and individuals.

The currency controls, combined with a dollar shortage, pushed Egypt into a currency crunch that has lowered industrial output and caused problems ranging from shortages of subsidized food to problems transferring money overseas.

Wednesday’s auction of US$1.5 billion, which fell outside of the bank’s normal dollar auction schedule, was intended to meet importers’ foreign currency needs, the CBE said. In the past three days, the bank has sold off almost US$1.9 billion.

As of the end of February, Egypt’s official reserves amounted to just $16.53 billion. In December, the most recent month for which detailed statistics are available, less than two-thirds of those reserves were held in cash or securities, with the balance in gold, Special Drawing Rights and unspecified “other” assets.

On Monday, the Central Bank says its target is to raise reserves to US$25 billion this year, “on the back of expected direct and indirect foreign inflows as confidence is restored.”

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