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Dollars flow into Egypt’s forex market after pound depreciation

The 14 banks have been banned from undertaking dollar transactions but can continue to use Iraqi dinars and other foreign currencies

Hundreds of millions of dollars have flowed through Egypt’s interbank market since the central bank allowed the Egyptian pound to depreciate by 13 percent to a historic low, bankers said.

The Egyptian pound weakened to as low as 32.20 to the dollar on Wednesday from 27.60 at the opening of trade. It since rebounded to 30.55 at midday on Thursday.

One banker said that more than $800 million was traded in the interbank market on Wednesday, an amount confirmed by a second banker.

Bankers said there were signs of international institutions pouring money into Egypt ahead of Thursday’s auction of local treasury bills. Such investors had been largely absent since March.

Egypt has been suffering a shortage of foreign currency since the war in Ukraine hit tourism revenue, raised commodity import bills and led foreign investors to pull more than $20 billion out of the economy. The pound has lost about 51 percent of its value since March.

The state MENA news agency quoted a banker as saying dollar inflows on the interbank market jumped to between $650 million and $750 million on Wednesday after they had been trading at $150 million on average.

More than $250 million flowed into the market from international institutions on Wednesday, MENA said.

Egyptian T-bill Sales Surge  

Sales of Egyptian 182-day treasury bills surged to EGP51.85 billion ($1.75 billion) at an auction on Thursday from EGP2.64 billion last week, as investors flooded back a day after the pound’s latest sharp fall against the dollar.

Sales of 364-day bills jumped to EGP30.40 billion from EGP3.75 billion last week, according to central bank data.

The average yield on the 182-day bills climbed to 21.032 percent from 20.595 percent, while that on the 364-day bills rose to 21.520 percent from 20.886 percent, the central bank said.

Egypt has been loosening a dollar peg in jumps, with a view to letting the currency float freely, as it promised the International Monetary Fund last October.

It was the largest amount of 182-day bills to be sold at a single auction in over a year and the largest amount of 364-day bills since December.