Egypt’s central bank weakened the value of the Egyptian pound against the dollar Sunday for the second time in a week.
The bank said in a statement that it weakened the pound at an auction, dropping the value from 7.83 to 7.93 pounds per dollar.
The central bank has allowed commercial banks a wider margin for selling and buying dollars since January, at 0.10 pounds above or below the official rate.
The central bank effectively controls the value of the domestic currency in regular foreign-currency auctions. This is the weakest the pound has been since the Egyptian government introduced the auction system in December 2012 aimed at regulating devaluation.
The new rate could boost much-needed foreign investment, as investors and economists see the currency as overvalued.
“We should be expecting gradual and managed movement,” said Hany Farhat, senior economist at CI Capital. He said the move was expected, and that his firm forecasts the pound will continue to weaken and reach 8.2 to the dollar by the end of the year.
Meanwhile, Egypt’s foreign-currency reserves continue to drop. Many economists say propping up the pound was a factor in the depletion of Egypt’s foreign-currency reserves. The bank reported that reserves fell 9.7 percent in September to $16.3 billion. Years of unrest since the 2011 overthrow of long-time autocrat Hosni Mubarak were already taking a heavy toll on sources of foreign currency, such as foreign investment and Egypt’s vital tourism sector.
Farhat said devaluation by itself will not be enough. “It’s a basic step toward more coherent (foreign exchange) management policies and will be accompanied by other policy measures as well.”
“We have to solve the problem from the root cause,” Egypt’s Minister of Investment Ashraf Salman told a group of business leaders last week. “We’re trying to restructure the trade balance in order to reach a proper gap,” he said, as imports far exceeded exports last year.
Salman said the government is aiming to boost exports in fertilizer and cement, along with standardizing the quality of imports by the end of the calendar year.
Egypt’s government is trying to send the message that the country is open for business, after struggling since the 2011 uprising that ousted Mubarak. It has launched a series of ambitious mega-projects and pushed through a host of tough measures, including slashing fuel subsidies and amending the property-tax law.