Egypt’s central bank set new exchange-rate movement limits for the interbank market as Governor Hisham Ramez, who took office yesterday, seeks to curb the worst currency slump since the 2003 devaluation.
Starting today, the pound can move by a maximum of 1 piaster against the U.S. dollar from the weighted average exchange rate at the most-recent dollar auction, instead of the previous 0.5% band, according to central bank regulations e-mailed to lenders and seen by Bloomberg News. There are 100 piasters to the pound.
The currency has weakened 7.6% to a record since the central bank started selling dollars at auctions on Dec. 30, limiting the amount each bank can buy to stem the worst decline in foreign-currency reserves since 2004. The falling pound is one of the biggest challenges facing Ramez, a former deputy central bank governor who joined the regulator after a brief stint as Managing Director of Commercial International Bank Egypt SAE, the country’s biggest publicly traded lender.
“The move is part of the central bank’s efforts to limit depreciation,” Anthony Simond, who helps manage $11 billion in emerging-market debt at Aberdeen Asset Management Plc in London, said by phone. “But no matter what the central bank does, the depreciation trend will be hard to stop.”
Auction Results
The central bank sold $73.1 million at today’s auction at a weighted average bid price of 6.6920 a dollar, with banks receiving on average 28% of the currency they sought. The pound strengthened 0.2% to 6.7020 at 3:27 p.m. in Cairo, according to data compiled by Bloomberg.
Reserves have plunged almost 60% since the 2011 uprising that ousted President Hosni Mubarak as foreign investors sold government securities anticipating a devaluation. Investors held 1.7 billion pounds ($253 million) of treasury bills as of October compared with 59.3 billion pounds in December 2010, according to the most-recent central bank data.
The regulations also include capping the price at which banks can sell dollars to commercial clients at 1 piaster above the interbank rate and an additional 1 to 2 piasters for clients who need the currency for non-commercial purposes. That compares with the previous spread of as much as 3 piasters regardless of the purpose and a 1% commission that was applied to non- commercial clients.
Pound Forwards
No one at the central bank was available for comment when contacted by Bloomberg News. Ramez said on a call with investors and analysts Jan. 9, one day before he was chosen to take over as governor, that he doesn’t expect the pound to weaken beyond about 6.7 a dollar by the end of March, according to three people who were on the call.
Three-month non-deliverable forwards advanced 1.4% to 7.3 a dollar today, reflecting investor expectations for the currency to drop another 8.2% in the period, according to data compiled by Bloomberg. Twelve-month forwards gained 0.6% to 7.95 a dollar.
“For foreign investors, it’s a bad move,” Simond said, referring to the regulations. “We’ve been saying the pound is overvalued for quite sometime so the quicker you get to fair value the better.”
Egypt raised 1.5 billion pounds at an auction of five-year and seven-year treasury bonds today, according to data posted on the Finance Ministry website. The average yield on five-year notes climbed 61 basis points, or 0.61 of a percentage point, from the last sale in December to 14.79%. The seven-year yield soared one percentage point to 15.18%. Both rates are the highest since October.
The government’s 5.75% dollar bonds due in 2020 slumped for an seventh day, pushing the yield seven basis points higher to 6.64%. That’s an increase of 108 basis points since a surge in violence between protesters and police that started Jan. 25, the second anniversary of the start of the anti-Mubarak uprising.
