CAIRO (Reuters) - Egypt’s pound weakened further against the dollar at the central bank’s foreign exchange auction on Tuesday on worries that turmoil on the streets could further delay a long-awaited IMF loan.
At Tuesday’s foreign exchange auction, the central bank set a cut-off price of 6.6525 pounds to the dollar, prompting the currency to weaken to 6.6857 on the interbank market, where the authorities limit how far the currency can move.
The pound has now lost 7.5 percent of its value against the dollar since the central bank began auctions at the end of December to try to preserve foreign reserves, which now barely cover three months of imports. The currency has been hitting a series of record lows.
Days of violence that have killed 52 people may make it even harder for the government to sell any austerity measures related to the IMF loan, seen as crucial to boosting investor sentiment.
“I‘m worried about the IMF deal in light of all of this (violence),” said one Cairo analyst, adding that he did not expect that a deal was imminent.
“I’d like to see the government sell the fiscal reforms it had planned to the people on the street now. If it does, there’s a good chance we will see more violence erupt. If it doesn‘t, then we’re not getting the money,” he said.
After agreeing a $4.8 billion IMF loan in principle in November, final agreement was delayed when the government postponed some tax rises seen as part of any pact.
The IMF has not set a date for when a team will return to Cairo for talks on the deal. Presidential spokesman Yasser Ali told reporters that “in the coming few days the IMF will decide on its visit to Egypt.” He did not elaborate.
Securing the IMF loan is seen as a vital step towards stabilizing the economy, both by providing a cash injection to bolster reserves and by offering an IMF seal of approval on the government’s reform program that would reassure investors.
“We think the pound could fall by a further 10 to 15 percent to around 7.50 (to the dollar), although much hinges on the progress of talks with the IMF. Meanwhile, the region’s equity markets have underperformed other emerging markets,” London-based Capital Economics wrote.
At current levels, the pound has weakened by 13 percent to the dollar in the two years since the uprising that toppled Hosni Mubarak and plunged the nation into turmoil. If it hits 7.50, the currency would have fallen about 22 percent.
On the interbank market, the central bank limits trades in a 0.5 percent band above or below the weighted average of bids at the most recent currency auction, limiting how far it can move.
Additional reporting by Shaimaa Fayed; Editing by Ruth Pitchford