CAIRO: The Egyptian pound weakened on Wednesday as banks paid more to buy dollars from clients in an effort to attract dollar liquidity into the banking system, but volumes remain low.
The dollar was being sold for almost 19 pounds per dollar on Wednesday, strengthening from around 18.4 earlier in the day. Banks are now buying dollars from clients at rates ranging from 18.2 per dollar to 18.89 per dollar.
"There is not enough dollar volume being supplied, so that causes the price to rise sharply," said one banker. "Banks are trying to raise the prices they buy dollars at to attract clients to sell," he added. Egypt's central bank abandoned its currency peg of 8.8 pounds to the US dollar on Nov.3 in a move it hopes will unlock currency inflows and bring back foreign investors who were driven away after a 2011 uprising.
Under the currency peg, dollar supplies were rationed by the central bank, forcing businesses to go to the black market for foreign currency. Bankers say it will take time for those dollars to be absorbed into the banking system after the float.
Pent-up demand for the dollar was building over the past three years in the import dependent country as a currency peg drained foreign reserves, forcing the central bank to ration dollars and building a huge backlog of dollar needs, estimated around $10-15 billion.
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