CAIRO: The Egyptian pound has fallen sharply against the dollar on the black market in the last few days, market participants said yesterday, citing dwindling supply of the US currency.
They forecast a further decline unless more hard currency enters the market. Egypt, which has suffered political and economic instability since president Hosni Mubarak was ousted, is struggling to curb a run on the pound, which at official rates has fallen 9 percent against the dollar this year.
The currency’s value on the black market has dropped even further and faster. Five market participants said dollars were being offered at rate of 7.55 pounds yesterday, compared to 7.45 pounds just a few days ago. The official interbank rate is 6.80 pounds to the dollar.
One foreign exchange dealer attributed the recent fall to increased demand from importers as they seek to meet their dollar needs for second-quarter imports.
“For amounts of $10,000 or above the rate is 7.55 pounds to the dollar. Lower amounts are at 7.50 pounds. It’s been like that for two days because supply (of dollars) is scarce,” one dealer in the parallel market said.
“The supply will be even lower within two or three days because there is lots of demand. If they don’t add to the foreign reserves then the price of the dollar will go up.”
Egypt’s foreign reserves dropped to a critical level of $13.5bn at the end of February, barely enough to cover three months of imports, from $13.6bn the month before. Reserves before the uprising in 2011 stood at $36bn.
The central bank, which is due to announce its foreign reserve level this week, said that levels have not declined significantly in March even though it used $1.3bn for imports including essential commodities and oil. In order to control the decline in the local currency the central bank introduced weekly dollar auctions in December. At Thursday’s auction the bank sold $38.4m to banks at a cut-off price of 6.7931 pounds to the dollar.
Through the auctions the government is rationing its supply of dollars and giving priority to importers of essential goods, leaving other importers to meet their hard currency needs via the parallel market. Dollars are available but at rising prices, said one executive at an Egyptian company that imports goods from abroad.
The recent jump in prices is an indication of a black market that is drying up due to higher demand than supply, one banker said. To draw in more investors, the central bank reopened a scheme this month that guarantees foreign investors in Egyptian stocks and government bonds will be able to recover their hard currency when they sell despite the shortages in the country.
Egypt is trying to cut its budget deficit in order to secure a $4.8bn International Monetary Fund loan to help its ailing economy and address its foreign exchange crisis. A technical team from the Fund is due to visit Cairo on Wednesday to discuss the deal.