Egypt banks ordered to sell dollars cheap to curb food inflation

There have been signs in the past week that the black market in the currency, which the central bank declared to have been eliminated in February, is returning.

Egypt, the world’s biggest importer of wheat, is taking advantage of $6 billion received from Saudi Arabia, UAE and Kuwait last month to alleviate a dollar shortage. Asmaa Waguih / Reuters

Egyptian banks were directed to sell dollars to food importers at a discount, as the country taps cash aid from its Gulf allies to fight the highest food inflation in five months.

The central bank sold US$500 million to lenders on Monday, then instructed them to resell their share of the funds at 7.5501 Egyptian pounds per dollar, according to two bankers familiar with the transaction. They asked not to be identified because the information wasn’t made public. The central bank’s mandated price compares with an official interbank rate of 7.6301 pounds per dollar.

Egypt, the world’s biggest importer of wheat, is taking advantage of $6 billion received from Saudi Arabia, UAE and Kuwait last month to alleviate a dollar shortage. The Egyptian pound has lost almost a quarter of its value since the start of the 2011 Arab Spring protests, and the scarcity of dollars has helped push the price of imported food higher.

The central bank said Monday’s sale clears the backlog of demand for dollars to pay for food imports through April 30, ahead of the Muslim holy month of Ramadan, which starts in June.

“The pricing doesn’t indicate a change in the central bank’s FX policy, but it’s an indirect way of countering food-price volatility that we’ve seen recently because of the hard-currency shortage,” Hany Farahat, senior economist at Cairo-based CI Capital, said by phone on Monday. The arrival of Gulf aid means “it’s likely we’re going to see more of those injections going forward,” he said.

The central bank has kept the pound’s value against the dollar unchanged for more than three months. There have been signs in the past week that the black market in the currency, which the bank declared to have been eliminated in February, is returning.

Food-price inflation jumped to 9.2 percent in March, the highest rate since October. Food accounts for almost 40 per cent of Egypt’s consumer price index, which rose 11.5 per cent in the 12 months through March. That compares with an average inflation rate of 9.2 per cent over the past four years. April inflation figures are due on May 10.

Central bank officials weren’t immediately available to comment when contacted by Bloomberg on Monday.

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