Egypt's central bank said it would offer $1.1 billion in an exceptional foreign currency auction on Wednesday to allow banks to meet demand for hard currency needed to pay for food imports. Egypt has been suffering from a sustained dollar shortage as political turmoil following the 2011 uprising against veteran leader Hosni Mubarak unnerved foreign investors and tourists, traditionally major sources of foreign currency. Egypt's foreign reserves rose to $17.489 billion in April from $17.414 billion in March, but are still markedly lower than the $36 billion seen before the 2011 revolt. "This auction is intended to cover and clear all pending food backlogs to secure availability of staple food commodities over the coming period," the central bank said in a statement. Egypt's tight finances have been hindering payments for food commodities. Banks and traders say some of the funding problems which surfaced early last year have re-emerged. Subsidised food is considered essential to averting social unrest in Egypt, the world's biggest wheat buyer. Wednesday's auction is significantly larger than the $40 million foreign currency sale Egypt holds three times a week. At its last exceptional dollar auction on Jan. 27, the central bank sold $1.5 billion at a cut-off price of 6.9518 Egyptian pounds. The Egyptian pound has been dropping for the last 10 sales as the central bank has been allowing it to weaken. It has been hitting successive lows. At its last auction on Monday the cut-off price was 7.0451 pounds. POUND EASES ON BLACK MARKET On the black market, the dollar traded at around 7.49/52 on Wednesday, slightly stronger than Tuesday's rates of 7.52/54, a trader said. The bank introduced regular dollar sales in December 2012 to counter a run on the pound. The rates banks are allowed to trade dollars at are determined by the results of the central bank sales, giving the bank effective control over official exchange rates. Arab Gulf countries pledged more than $12 billion in aid to Egypt after the army deposed Islamist president Mohamed Mursi last July after mass protests. But even the Gulf aid has not prevented Egypt's current account recording a deficit of around $1.5 billion between October and December. "It's a managed depreciation. It makes sense to have a depreciation of the pound to bring it to a more realistic level," said Angus Blair, chairman of business and economic forecasting think-tank Signet. "Depreciation is part of an economic policy programme that Egypt requires. It could be part of getting the house in order ahead of presidential elections." Former army chief Abdel Fattah al-Sisi is expected to easily win a presidential election due on May 26-27. Cairo-based forex traders have raised the possibility the pound might appreciate again after the elections. http://english.ahram.org.eg/News/101260.aspx
