Central Bank of Egypt to auction US$1.5bn to stabilise the currency

CAIRO, Egypt, Capital Markets in Africa — Egypt’s central bank will offer US$1.5 billion today  in its third special foreign exchange auction of the week, part of an effort to crush the currency black market and stabilize the Egyptian pound a day after a major devaluation.

Egypt devalued the pound on Monday to 8.85 pounds to the dollar from 7.73 pounds and announced that it would shift to a more flexible exchange rate. The equity market rallied on the news.

Today’s auction would bring the total amount of dollars injected into the banking system through special auctions in the past two weeks to US$2.4 billion, equivalent to 15 per cent of the central bank’s net foreign reserves.

“The aim of offering US$1.5 billion is to completely finish off the black market,” a central bank source said.

Egypt has been facing an acute foreign currency shortage since a 2011 uprising drove away tourists and foreign investors, key earners of hard currency. Its reserves have more than halved since before 2011 to US$16.5 billion in February, weighing heavily on the pound.

The central bank did not say where the dollars for its exceptional auctions were coming from, raising speculation that Egypt was expecting to receive a major loan or grant from abroad or had decided to further tap its reserves.

The central bank has said it expects to rebuild its reserves to US$25 billion by the end of 2016.

This week’s devaluation is welcomed by economists, analysts and bankers which had helped narrow the gap between the official and black market rate. But the gap widened again yesterday to 9.6 to the dollar.