Egypt's central bank allowed the Egyptian pound to weaken further at a dollar sale on Wednesday after the currency slid to an all-time low in the official market last week, narrowing the gap between official and black market rates. Sustained dollar shortages have fuelled a thriving black market in Egypt. Political turmoil following the 2011 uprising against Hosni Mubarak has unnerved foreign investors and tourists, who are usually major sources of foreign currency. The central bank said it sold $37.6 million at a cut-off price of 7.1150 pounds, weaker than the 7.1068 pounds at its last sale on Monday. It had offered $40 million. Forex traders and economists have described the central bank's decision to allow the pound to gradually weaken as a managed depreciation. The central bank has not given an explanation for allowing the currency to weaken in recent weeks. The rates at which banks are allowed to trade dollars are determined by the results of the central bank sales, giving the bank effective control over official exchange rates. One black market trader put Wednesday's rates at 7.50/53 pounds to the dollar, stronger than 7.53/55 on Monday. The pound had strengthened temporarily on the black market after an exceptional central bank forex auction last week provided the official market with $1.1 billion. After the exceptional auction, black market traders offered dollars for around 7.46/50. Former army chief Abdel Fattah al-Sisi is expected to easily win presidential elections due next Monday and Tuesday. The pound has weakened around 2.3 percent against the dollar this year, according to Capital Economics. "Given that the central bank (CBE) had kept the exchange rate stable for the best part of the past year, this ... marks a significant change in policy," Capital Economics economist Jason Tuvey said in a note issued on Tuesday. A weaker currency could boost the country's economy, currently growing only around 2 percent, by improving the competitiveness of Egyptian exports, Tuvey said. "On the basis of the deviation of the real effective exchange rate from its long-run average, the pound still seems to be overvalued by around 9 percent," he said. http://english.ahram.org.eg/News/101914.aspx
