CAIRO: Egypt’s central bank sold $600m to banks in a special auction of foreign exchange yesterday to pay for wheat, meat, cooking oil and other essential imports to a country struggling with a currency crisis.
The size of the auction — 15 times the amount the central bank has been selling at its regular currency auctions — showed the extent of pent up demand for dollars as Egypt struggles with an economic crisis two years after the ousting of Hosni Mubarak.
The central bank has been rationing dollars since late December in a system of regular foreign currency auctions brought in to cope with the impact of a run on the pound. Foreign exchange dealers said the authorities would have to use more dollar reserves to guarantee food supplies. Food price inflation has stoked unrest in the past.
“The effect will be temporary because the demand is a lot higher than this. They must do it again but it is not clear when that will be,” said a currency dealer.
Prime Minister Hisham Kandil said yesterday that the government was looking for ways to stabilise prices of key goods and to ensure the flow of goods into the local market. He said that the unspecified measures were needed to stabilise prices in the coming period in the face of possible price hikes.
The hard currency was sold at 6.87 pounds to the dollar — near the official rate. The pound is trading much weaker on the black market where most private sector importers are having to source their hard currency needs.
The special auction follows Qatar’s pledge last week to buy $3bn in government bonds — a boost to foreign currency reserves that had fallen to critically low levels below the $15bn needed to cover three months worth of imports. At the end of March, the reserves stood at $13.4bn.
At official rates, the currency has lost a tenth of its value since the beginning of foreign exchange rationing. The central bank has been holding three auctions per week, selling $40m at each. Shortages of imported fuel are disrupting transport and leading to power cuts. Egypt, the world’s biggest importer of wheat, has also cut back on international purchases this year in the hope of a bumper local harvest.
Yesterday’s auction was held for banks with clients importing staple commodities such as wheat, cooking oil, tea, meat, fish, beans, butter, corn and baby milk, components for drugs and vaccines as well as spare parts, the central bank said. Reuters
