UPDATE 3-Egypt's central bank acts to support imports with huge dollar sale

Mon Jan 27, 2014 10:57am EST

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(Adds auction result)

CAIRO Jan 27 (Reuters) - Egypt's central bank restocked the market with much-needed dollars on Monday, acting to support the flow of imports of staple foods against an increasingly volatile political backdrop.

The bank said it sold $1.5 billion from its foreign reserves to cover strategic imports such as wheat, meat and cooking oil, in its largest ever exceptional currency auction.

It has been running down its hard currency reserves to prop up the Egyptian pound, but its coffers have been boosted by aid payments from Gulf states that support the military-backed government. Foreign reserves fell to $17.032 billion in December from $17.766 billion in November.

As the pound weakens, street prices of basic imported goods rise - a factor contributing to civil unrest and a symptom of the economic crisis that has gripped the most populous Arab nation since an uprising in 2011 overthrew autocrat Hosni Mubarak.

Monday's auction dwarfed the $40 million currency sale Egypt holds three times a week. It was also larger than the $1.3 billion the central bank offered at its last exceptional auction in September.

A shortage of dollars has hampered importers as well as fuelling an unofficial currency market.

"The timing of the auction is important in light of the price of the dollar in the black market and the volume of orders at banks to provide for strategic products," a central bank official told Reuters.

Regular currency auctions began during ousted president Mohamed Mursi's year in office, helping support the pound as tourists and investors took their hard currency elsewhere.

A trader said the dollar was offered at 6.96 Egyptian pounds on the official market early on Monday - marginally weaker than the auction cut-off price of 6.9518 pounds - and at 7.37 pounds on the black market.

"The central bank intervened at the right time... This auction will narrow the gap between the dollar in the official market and the parallel market," Mohammad al-Atrabi, chief executive of Egyptian Gulf Bank told Reuters.

The currency sale coincided with the promotion to field marshal of army chief General Abdel Fattah al-Sisi, fuelling speculation he will run for president.

The presidential vote will precede parliamentary polls, authorities said on Sunday, a day after dozens died in anti-government marches on the third anniversary of Mubarak's fall.

Egypt's central bank closed 13 bureaux de change last week for up to eight weeks for manipulating foreign currency prices in the black market, an official at the central bank told Reuters. (Reporting by Asma Alsharif and Shadia Nasralla, additional reporting by Ehab Farouk; Editing by John Stonestreet)

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