By Nada Badawi, Doaa Farid
The Central Bank of Egypt (CBE) sold $1.3bn from its foreign reserves in an “exceptional auction” it held on Wednesday, in an attempt to provide strategic imports, the bank said in an official statement on its website.
“In light of the CBE’s efforts in effectively managing and monitoring the domestic FX [foreign exchange] market and supporting the banking sector to maintain its role in supporting the domestic economy,” the central bank will hold an exceptional FX auction, it said in a statement.
Following the bank’s decision, the value of the US dollar depreciated against the Egyptian pound, said Ahmed Nady, executive director at an exchange company.
“The price of the US dollar has reached 7.10 for purchasing and 7.15 for selling, but the Egyptian pound remains at 6.9 against the US dollar, all thanks to the bank’s exceptional auction,” he told Alborsa newspaper.
The CBE’s FX auctions for banks started last December because of the dwindling reserves. “It is the newest form of providing foreign currency in the Egyptian market to import needed products,” said Fakhry El-Fekky, an economics professor at Cairo University, adding that at the auction each bank is putting forth a specific price for buying dollars.
El-Fekky, who is also the former assistant of the executive chairman of the International Monetary Fund (IMF), explained that there are three ways for providing the foreign currency. The first is directly between the Central Bank and the government and its authorities in order to import wheat, medicines and supply goods.
The second means is the “interbank exchange rate” which enables banks to borrow foreign currency from each other through a “dealing room”, wherein each bank presents the currency it has for sale to other banks which lack it. El-Fekky said that this method has been halted since February because banks had no adequate foreign currency, but it is back this month.
This time the exceptional auction is of the third type, which is between the Central Bank and the banks, with the latter providing banks with foreign currency their customers need on a weekly basis, El Fekky said. He added that this auction would affect the foreign currency at the black market.
The Egyptian pound has lost over 15% of its value against the dollar during deposed president Mohamed Morsi’s one year in office, contributing to a 10.28% rise in the annual inflation in July, compared with 8.2% in May and 7.6% in March.
Since December, the Central Bank has restricted access to the scarce US dollar and attempted to curb a run on the pound by hosting dollar auctions to halt the sale of foreign currency. The auctions, held three times a week, are aimed at rationing the supply of dollars and giving priority to staple food imports due to the state’s dwindling foreign reserves. However, according to Reuters, this week’s exceptional auction is $40m larger than the regular weekly auctions.
Egypt has been struggling with its lack of foreign currency reserves since the 25 January Revolution. The state relies on its foreign reserves to purchase basic imports, primarily wheat. Net foreign reserves stood at $13.4 in March compared to $36bn on the eve of the revolution.
Following the $12bn in aid pledged by Gulf countries after Morsi’s ouster, the foreign reserves surged in July reaching $18.88bn.