The Egyptian pound extended its decline to a record after the central bank sold $74.8 million to banks in the second of daily dollar sales even as President Mohamed Mursi said the currency was bound to stabilize.
The pound weakened almost 1 percent to 6.3637 a dollar at 12:18 p.m. in Cairo after the central bank sold $74.8 million at a cut-off price of 6.3050 a dollar, according to data compiled by Bloomberg. The auctions, which followed the government's delay in securing a $4.8 billion International Monetary Fund loan, are designed to cap demand for dollars after foreign- currency reserves plunged almost 60 percent since last year's uprising. The currency had depreciated 2.6 percent in the year to Dec. 27, data compiled by Bloomberg show.
The weakening is a "mini-devaluation," Mohamed Abu Basha, an economist at Cairo-based investment bank EFG-Hermes Holding SAE, said in a report. The central bank's main target is "to instate a transparent mechanism to value the pound through the market with an aim to limit speculation."
President Mohamed Mursi said he "wasn't concerned" about the pound's decline. Tarek Amer, chairman of the National Bank of Egypt, the country's biggest lender, said the mechanism has "dealt a blow to the black market." Still, government efforts, including a public appeal to limit the use of dollars, fed into broader worries. Some exchange houses in Cairo turned customers away before the central bank's auction, while others said they didn't have enough dollars to meet demand.
"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 yesterday. "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."
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 benchmark EGX 30 Index gained 0.3 percent today, bringing a rally this year to 51 percent.
Egypt, the world's biggest wheat importer, abandoned a dollar peg in favor of a managed float in 2003 after foreign reserves plunged. The crisis gave rise to a black market for before Central Bank Governor Farouk El-Okdah introduced an interbank market to ease access to the U.S. currency.
The pound's depreciation "doesn't worry or scare us," Mursi said today, according to the state-run Middle East News Agency. The situation "will even out in a few days," he said.
Still, in announcing the auction, the central bank called on Egyptians to "ration" their foreign currency use after reserves fell to a "critical" level.
Egypt delayed the IMF agreement, originally slated for this month, after Mursi suspended tax increases linked to the program amid political turmoil after he pushed a disputed constitution to a vote. The unrest prompted Standard & Poor's, citing political unrest, to lower Egypt's credit rating to the same junk level as Greece and Pakistan on Dec. 24.
Aid and loan pledges from the World Bank, the European Union and the African Development Bank have also been "stalled" pending a final agreement with the IMF, Planning and Cooperation Minister Ashraf el-Arabi said in an interview in Cairo yesterday.
The government is seeking to conclude the IMF agreement in January and will set a date to impose the suspended taxes pending a national dialogue, Finance Minister Momtaz El-Saieed said in a statement today.
"The likely signing of the IMF deal in a few weeks could act as a potential source for stabilizing the pound in 2013," Abu Basha of EFG-Hermes wrote. "Foreign bond investors may be more encouraged to invest in the local debt market given that the pound risk, which constituted a main barrier for their entry, may be diminishing after the depreciation over the past few weeks."
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.
Managers at several currency exchanges said they weren't aware of the results of the auction and were unclear on 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, he said.
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."
--With assistance from Abdel Latif Wahba and Digby Lidstone in Cairo. Editors: Digby Lidstone, Zahra Hankir
To contact the reporters on this story: Alaa Shahine in Dubai at asalhabloomberg.net; Tarek El-Tablawy in Cairo at teltablawybloomberg.net
To contact the editors responsible for this story: Andrew J. Barden at bardenbloomberg.net; Alaa Shahine at asalhabloomberg.net