Egypt's black market dollar hits record high amid devaluation talk

Thursday 21-07-2016 05:07 PM

The Central Bank of Egypt devalues the pound against the US dollar on Mar. 14, 2016

By Reuters

By Asma Alsharif and Ehab Farouk

CAIRO (Reuters) - The gap between Egypt's official and unofficial dollar rates hit its widest ever on Thursday, black market traders said, a day after the central bank governor raised the option of a second devaluation of the country's pound.

With a persistent dollar shortage continuing to bite, ten traders told Reuters they sold dollars at record highs between 11.85-12.05 pounds per dollar early on Thursday, more than 35 percent above the central bank's official rate of 8.78.

Import-dependent Egypt has faced a dearth of foreign currency since a popular uprising in 2011 and subsequent political unrest drove away tourists and foreign investors, with reserves tumbling from $36 billion that year to around $17.5 billion last month.

The central bank has been rationing dollars and keeping the pound artificially strong through weekly dollar sales, while businesses and individuals have taken to the black market to source their dollar needs at increasing rates.

In an attempt to close the gap between official and black market rates it also devalued the pound in March to 8.78 per dollar, an option its governor on Wednesday left the door open to repeating.

"It is not possible to discuss the flotation of the pound now ... but a devaluation depends on what the bank sees at the appropriate time," Tarek Amer was quoted as saying by state news agency MENA.

Speculation over a second devaluation has grown since Amer told local newspapers in early July that it had been a mistake to fix the currency at an artificial rate and his focus was on stimulating the economy.

The central bank has held the official exchange rate unchanged at 8.78 since March, while the gap with the unofficial rate has steadily widened.

"There has been an increase in (dollar) demand over the past two days and people are afraid to sell for fear of the pound weakening further so supply is lower," one trader told Reuters.

Five other traders said they were aware of six-figure deals at 11.85, 11.95 and 12 per dollar.

Economists say a devaluation is all but inevitable.

But the timing is crucial to maximise its impact while mitigating any inflationary effect, particularly as the government plans to introduce value-added-tax this year and has yet to complete subsidy reforms.


(Reporting by Asma Alsharif and Ehab Farouk; editing by John Stonestreet)

facebook comments