$1.25 bln bond payment behind drop in foreign reserves

Wednesday 07-10-2015 08:51 PM
$1.25 bln bond payment behind drop in foreign reserves

Employees speak on phones at an exchange office in downtown Cairo June 5, 2014. REUTERS/Amr Abdallah Dalsh


By Abdel Kader Ramadan

CAIRO, Oct 7 (Aswat Masriya) - The Egyptian government has repaid $1.25 billion for 10-year bonds that recently matured, which led to a drop in the country's foreign currency reserves last month, three investment banks told Aswat Masriya.

The decline in foreign reserves was expected as the date of repaying the bonds was due by the end of September, said Hany Farahat, business analyst at CI Capital.

Egypt's current net foreign reserves fell to $16.335 billion at the end of September, dropping by nearly $2 billion in one month, the central bank said on Wednesday. 

Farahat explained that the reserves will continue to fall in a downward trend as a result of the decline in exports, in addition to a marked stagnation in direct foreign investment.

Hany Geneina, head of research at Pharos investment bank, said that the decline in reserves puts pressure on the Egyptian pound, which places the Central Bank in a "big dilemma" between sacrificing reserves to keep the pound exchange rate steady against the dollar, or reduce the value of the local currency, bearing in mind that Egypt will make another bond payment worth $1 billion in October.

Foreign exchange reserves fell from about $36 billion before the January uprising in 2011 to $18.5 billion last July.

Egypt's economy has suffered a decline in foreign exchange availability following four years of political turmoil, which affected the flow of foreign investment. 

Investment banks predict that if the central bank continues to depreciate the pound, the dollar will be equal to reach the equivilent of eigh pounds in the official market by the end of the year.

Egypt's central bank allows banks to trade the dollar at 10 piasters higher or lower than the auction price, while exchange shops can add another 5 piasters to the official price. 

The dollar is currently trading at 7.78 pounds on the sell side and 7.83 on the buy side.

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