Egypt central bank widens band in which banks can trade dollars

Thursday 29-01-2015 07:30 PM
Egypt central bank widens band in which banks can trade dollars
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By Shadi Bushra and Nadia El Gowely

CAIRO, Jan 29 (Reuters) - Egypt widened the price band on Thursday in which banks can trade dollars, sending the local pound currency to record lows in a move that seemed to take some steam out of the country's thriving black market.

The central bank has let the official pound exchange rate weaken steadily in the past two weeks, as authorities try to wipe out the black market as part of economic reforms designed to reinforce a nascent recovery and burnish the country's image ahead of an investment conference in mid-March.

Bankers told Reuters the central bank had given them verbal permission to buy and sell dollars in a range of up to 0.10 pounds more or less than the official rate, more than tripling the previous band of 0.03 pounds in either direction.

The move sent the pound as low as 7.59 per dollar compared with 7.49 at a currency auction - which determines the rate at which banks are allowed to sell - earlier in the day.

Over the same period the black market level was virtually unchanged, with one trader quoting a price of 7.83 just after the auction and another 7.85 later in the day.

The widening of the official currency band seemed to catch traders by surprise, and some expressed concerns about the unofficial market's viability.

"There is almost no black market... No one is buying from me and all are going to the banks," said one.

Previously, a run of pound depreciations that began early last week seemed to make little difference to the black market, which simply weakened alongside the official rate.

Expectations that the central bank is preparing to devalue the pound have grown since it announced a surprise 50-basis-point cut in benchmark interest rates earlier this month, saying plummeting global oil prices had eased the inflation outlook.

(Editing by Toby Chopra and John Stonestreet)

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