Desperate times, desperate measures: Egypt's Central Bank holds exceptional $1.5billion auction to support banks
The Central Bank of Egypt (CBE) held a fourth exceptional auction on 27 January to sell $1.5bn of its foreign reserves in an attempt to support the banking sector, the bank said in a Monday statement. The central bank noted that banks would be required to designate the amount of US dollars needed as per their clients’ import needs.
According to the statement, such imports should fall under the categories of basic food commodities, intermediary production components, raw materials, capital goods, spare parts and pharmaceutical components. Banking and economic expert Bassant Fahmy explained that the move is aimed at limiting the authority of exchange companies. “The CBE has recently ordered the closure of 19 exchange companies, and there should be another resource for institutions and companies to access funds,” he said.
According to Fahmy, exchange companies have been controlling the financial market and their pricing policies should be subject to greater regulation. This exceptional auction will help in depreciating the value of US dollar against the Egyptian pound, Fahmy added.
In September, the central bank sold $1.3bn in a similar exceptional auction, as well as $600m in an April auction and $800m in May.Since December 2012, the central bank has been restricting access to US dollars by hosting dollar auctions up to three times a week. The move comes as an attempt to ration the supply of dollars and give priority to staple food imports due to the state’s dwindling foreign reserves.
The Egyptian pound had lost 15% of its value against the dollar during deposed president Mohamed Morsi’s one year in office. Egypt’s foreign reserves slumped after the 25 January Revolution, standing at $17.05bn at the end of December compared to $36bn on the eve of the revolution.
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