Pound hits low as bank auctions US$1.1 billion for food imports

The official exchange rate for the Egyptian pound hit a record low Wednesday as the Central Bank of Egypt (CBE) made US$1.1 billion available for food importers at an exceptional foreign currency auction.

The bank announced a cut-off price of LE7.0950 to the US dollar, weakening from LE7.0451 to the dollar at an auction on Monday May 12. Prior to the 2011 revolution, the exchange rate stood at around LE5.8 to the dollar.

After expending billions of dollars in foreign reserves in an attempt to defend the pound, the Central Bank introduced currency controls in December 2012. By setting the sale price for dollars, it is able to directly control the official exchange rate. The CBE currently holds auctions for $40 million three times a week, at which banks can purchase foreign currency to make available to customers.

However, regular auctions have proved insufficient to meet the needs of importers, most of whom have to pay for foreign commodities in hard currency. Egypt relies heavily on imported goods to feed its population, particularly wheat, for which it is the world’s largest importer.

The latest auction was aimed specifically at providing dollars to bring critical food supplies into Egypt. The CBE instructed banks to apply for enough currency to meet their clients’ entire backlog of staple food imports.

Tourism and Foreign Direct Investment, Egypt’s traditional sources of hard currency, have dropped sharply since the revolution, leaving the country to increase its reliance on foreign aid, Suez Canal revenues and remittances from workers abroad.

Egypt’s foreign currency reserves reached $17.489 billion at the end of April, up from $17.414 in March. Current reserves are substantially higher than the $14.42 billion at the same time last year, but well below the almost $37 billion before the revolution.