Egypt's pound weakened to 7.29 per dollar at an unscheduled central bank auction on Tuesday from 7.24 a day earlier, the third depreciation this week in a process traders say aims to gradually stamp out a thriving black market. The central bank offered 40 million dollars and sold 38.4 million at a cut-off price of 7.29 pounds per dollar, the weakest level the pound has officially been allowed to reach since Egypt introduced regular dollar auctions in December 2012.
The rates at which banks are allowed to trade dollars are determined by the results of the central bank's sales, giving the bank effective control over official exchange rates. But there remains an active black market in the pound that is used by businesses and individuals and the gap between this and the official rate had been widening for months.
The pound was trading at 7.88 to the dollar on the black market on Tuesday, a dealer said, slightly weaker than Monday's unofficial rate of 7.87 to the dollar. Tuesday's depreciation narrowed the gap between the official and unofficial rates by roughly four piastres, but the gulf remains significant.
Expectations that the bank would devalue had grown since it announced a surprise 50-basis-point cut in benchmark interest rates last Thursday, saying that plummeting global oil prices had eased the inflation outlook. Traders and analysts expect the central bank to allow the pound to depreciate further to close the gap with the black market rate. Some said it had previously held back due to inflation concerns. The bank usually only holds dollar auctions on Sunday, Monday, Wednesday and Thursday.