CAIRO, Oct 31 (Reuters) - The Egyptian pound’s decline against the dollar accelerated on the black market but at lower volumes, as rising prices led importers to put off purchases, five traders and importers told Reuters on Monday.
Egypt’s black market for dollars has flourished since a 2011 uprising scared off foreign investors and tourists, the country’s major sources of foreign currency.
The central bank has been rationing dollars and imposing capital controls as it maintains an artificially strong pound at 8.8 per dollar. Importers who had to pay a premium for dollars on the black market now say the rate has risen too high.
Three currency traders were buying dollars on Monday for 17.5 to 17.85 pounds and selling them to importers for 18 to 18.2 pounds, but they said volumes were low. Six days ago, they were selling dollars at 16.1 pounds.
“I am not convinced with these prices ... it is not real demand,” said one importer who quit buying because of the cost of dollars. “There is a decision by importers to stop importing for a few months to cool the prices down.”
The pound has been tumbling almost daily on the black market since Saudi Arabia halted petroleum aid to Egypt this month, forcing it to spend $500 million for oil products on the spot market.
The Federation of Egyptian Chambers of Commerce issued a statement this week that said trading of foreign currencies in Egypt had “exceeded its fair price due to ongoing speculation”. It called on its members to stop buying foreign currencies for two weeks and to cut down on imports.
A commodities trader said he was quoted 18.25 per dollar. Prices are mostly being driven by panic rather than real demand for the dollar, he said.
“Everyone is in panic ... The Sudanese pound now is stronger than the Egyptian pound,” the trader said. “Is the economy here worse than Sudan? This is all people panicking and turning their Egyptian pounds in to dollars.”
The trader said he expects the dollar will stabilize at 13 or 14 pounds in a few weeks, after Egypt secures a $12 billion loan program from the International Monetary Fund.
Egypt is waiting for IMF board approval of the three-year program. In return, Egypt must carry out economic reforms, including a devaluation of the pound and painful subsidy cuts.
The central bank devalued the pound by almost 14 percent in March, briefly closing the gap with the black market. The renewed weakening has increased pressure on the central bank to devalue again.
The country has been trying to rebuild its reserves, which are currently around $19.5 billion, far lower than the $36 billion in 2011. (Additional reporting by Eric Knecht and Amina Ismail; Writing by Asma Alsharif; Editing by Larry King)