Pound Falls, CBE to Hold Extra Auction

Egypt's central bank said that it had accepted bids worth $49.6 million with a cut-off price of LE6.7020 to the U.S. dollar at a foreign currency auction. The cut-off price at the previous auction, held, was 6.6920. The Central Bank of Egypt (CBE) adopted the auction system at the beginning of January when it became unable to freely support the local currency after its foreign reserves reached what were described as "critical" levels.

The pressure on the Egyptian pound is further exacerbated by the latest fall in net foreign reserves. On Tuesday, CBE said that reserves had fallen by $1.4 billion to reach $13.613 billion at the end of January. The bank used the reserves to prevent sharp declines in the pound over the course of the past two years, but it is unable to do so anymore.

CBE also said it will hold an unscheduled extra auction on Thursday in an apparent move to try and ease the pound's fall. The bank had already reduced the number of auctions it holds to twice weekly, but the latest developments indicate the bank will be more active in managing the exchange rate in the coming period. Wednesday's was the eighteenth foreign currency auction. The Egyptian pound has lost some 8 per cent of its value since the auction system started at the beginning of January.