Local economists say currency crisis will worsen if IMF loan agreement is postponed further, expect Egyptian pound to fall as low as 7 to US dollar by month's end
The Egyptian pound continued its downward trend on Monday after hitting another record low in the wake of a Sunday currency auction held by the Central Bank of Egypt (CBE).
The auction's cut-off price was LE6.58 to the dollar, a 0.1 per cent fall from a Thursday foreign-currency auction. The CBE announced that it had sold $74 million at Sunday's auction, some $1 million short of the $75 million of offer.
At local banks and currency exchanges, the US dollar is currently being sold at record-high prices of LE6.65 after adding profit margins for traders.
Last week, the interbank trading band was narrowed to 0.5 per cent, which had stood at 1 per cent at the time the CBE began holding the auctions in an effort to slow the depreciation of the Egyptian pound.
The Egyptian pound has dropped by some 6.6 per cent since the CBE adopted the new currency regime.
Cairo-based investment firm Beltone Financial says the new auction regulations introduced by the CBE have – to a certain degree – helped offset Egypt's currency crisis.
The CBE has limited auctions to three times per week instead of holding them on a daily basis, while imposing a 0.5 per cent band limit on interbank trading. Financial analysts say that the steps have served to cushion the currency crisis.
Beltone expects the Egyptian pound to slump heavily against the dollar, possibly reaching a selling price of LE7 by the end of January – especially if the IMF loan agreement remains unsettled.
In December, the CBE decided to hold periodic currency auctions for local banks to help conserve the nation's net foreign reserves, which the bank said had reached an alarming $15 billion.
Experts had expected that an IMF loan agreement, followed by economic aid packages from several European and Arab donor countries, might help shore up Egypt's foreign currency position.
The EU and other financial organisations, including the African Development Bank, have said that their respective support for Egypt's economy would be dependent upon the approval of the proposed IMF loan.