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.”
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.