* Political turmoil has led to dollar shortages
* Egypt is world's biggest wheat importer
* Egyptian pound weakening, presidential poll looms
(Adds trader, economist comments, amount sold)
CAIRO, May 14 The Egyptian pound weakened on
Wednesday at an exceptional central bank sale of $1.1
billion aimed at supplying dollars to importers of essential
foodstuffs, allowing it to hit a new all-time low in the
In a country where subsidised food is considered essential
to averting social unrest, tight finances have been hindering
payments for food commodities, traders have said. Egypt is the
world's biggest wheat buyer.
The central bank announced a cut-off price of 7.0950 pounds
to the dollar at the auction, weaker than at the last central
bank foreign exchange sale held on Monday, when the cut-off
price was 7.0451.
In the interbank market, the dollar changed hands for as
much as 7.1049 pounds, the lowest according to Thomson Reuters
data going back to the 1990s.
The rates banks are allowed to trade dollars at are
determined by the results of the central bank sales, giving the
bank effective control over official exchange rates.
The central bank sold the entire amount it had offered.
Egypt has been suffering from a sustained dollar shortage as
political turmoil following the 2011 uprising against veteran
leader Hosni Mubarak unnerved foreign investors and tourists,
traditionally major sources of foreign currency.
Egypt's foreign reserves rose to $17.489 billion in April
from $17.414 billion in March, but are still markedly lower than
the $36 billion seen before the 2011 revolt.
Banks and traders say some of the funding problems which
surfaced early last year have re-emerged.
"This auction is intended to cover and clear all pending
food backlogs to secure availability of staple food commodities
over the coming period," the central bank said in a statement.
Wednesday's auction is significantly larger than the $40
million foreign currency sale Egypt holds three times a week.
At its last exceptional dollar auction on Jan. 27, the
central bank sold $1.5 billion at a cut-off price of 6.9518
The Egyptian pound has dropped more than 10 times in a row
at the sales as the central bank allows it to weaken, hitting
On the black market, the dollar traded at around 7.49/52 on
Wednesday afternoon, slightly stronger than Tuesday's rates of
7.52/54, a trader said.
The bank introduced regular dollar sales in December 2012 to
counter a run on the pound.
Arab Gulf countries pledged more than $12 billion in aid to
Egypt after the army deposed Islamist president Mohamed Mursi
last July after mass protests. But even the Gulf aid has not
prevented Egypt's current account recording a deficit of around
$1.5 billion between October and December.
"It's a managed depreciation. It makes sense to have a
depreciation of the pound to bring it to a more realistic
level," said Angus Blair, chairman of business and economic
forecasting think-tank Signet.
"Depreciation is part of an economic policy programme that
Egypt requires. It could be part of getting the house in order
ahead of presidential elections."
Former army chief Abdel Fattah al-Sisi is expected to easily
win a presidential election due on May 26-27.
Cairo-based forex traders have raised the possibility the
pound might appreciate again after the elections.
One trader said Wednesday's drop was the biggest since the
first quarter of last year.
The impact of the exceptional auction on the black market
may be limited, especially with the Islamic fasting month of
Ramadan in the summer, when families come together every night
for a large meal.
The pound strengthened on the black market after the last
exceptional auction in January for a few hours, only to weaken
to its previous levels the next day.
"I doubt it will supply the market with what it needs.
Demand is rising at the moment for food imports for Ramadan
supplies. Secondly the pick up in construction has raised
demands for building materials," said Moheb Malak, economist at
"In the short term, the current month at least, pressures on
the pound are strong, the auction will only give temporary
(Reporting By Shadia Nasralla; Additional reporting by Tom
Perry; Editing by Gareth Jones and Toby Chopra)