CAIRO, Oct 27 (Reuters) - The Egyptian pound hit a new low against the dollar on the black market on Thursday, as speculators hold onto dollars in anticipation of an impending pound devaluation.
Egypt has struggled to earn dollars since a 2011 uprising drove away tourists and foreign investors -- the country’s main sources of foreign currency. The central bank has been rationing dollars and imposing strict capital controls whilst maintaining the pound at an artificially strong official rate of 8.8 to the dollar.
On Thursday, the difference between the official and unofficial rates widened to unprecedented levels, with a dollar selling for almost twice as much on the black market as it costs at the bank.
Three traders told Reuters that they were buying dollars for 16.5-16.6 pounds and selling for 16.8-17.1 pounds. On Tuesday, the dollar was selling for about 16.10 pounds.
“The supply is very thin. People are expecting the pound to reach 18 per dollar so they are not selling,” said one trader, adding that he had completed a $40,000 transaction at 17.10 per dollar.
The central bank devalued the pound by almost 14 percent in March, briefly closing the gap with the black market. But the latest weakening has increased pressure on the central bank to devalue again.
The pound has tumbled almost daily on the black market since Saudi Arabia halted petroleum aid to Egypt this month, forcing it to spend $500 million on oil products on the spot market.
That, along with $1.8 billion pledged to help ease a shortage of sugar and maintain reserves of basic foodstuffs, has raised concerns that the central bank will not be able to build up its foreign reserves enough to manage an orderly devaluation.
The central bank has said it will not consider floating the tightly managed currency until its reserves exceed $25 billion.
Bankers and economists say a devaluation is inevitable but that the central bank must attract dollars into the economy to avoid prolonged uncertainty. (Reporting by Asma Alsharif, Editing by Lin Noueihed and Kevin Liffey)