CAIRO, April 20 (Reuters) - Egypt’s currency weakened on the black market on Wednesday as traders speculated on a coming devaluation and hoarded dollars they believe will rise in value.
Egypt, which relies heavily on imports, has been facing a dollar shortage since the popular uprising in 2011 drove away tourists and foreign investors, major sources of hard currency.
The acute shortage has pushed businesses and individuals unable to source dollars in the official banking system to the black market, where they can procure the currency for an increasingly high price.
The black market rate hit a record 11.35 Egyptian pounds to the dollar, three currency traders told Reuters, up from 11 pounds just one day earlier.
The currency has weakened by about 10 percent over the past week.
“Traders at exchange bureaus are holding on to their dollars as the price could go sharply higher the next day,” one forex trader told Reuters.
Egypt central bank governor Tarek Amer on Wednesday called the sudden rise on the black market “unjustified” and the result of “speculation” and “rumours by those trying to harm the country” in comments to state news agency MENA.
Amer said the central bank has no intention of devaluing the pound. Egypt’s central bank sold $120 million at its regular rate of 8.78 during a weekly dollar auction on Tuesday.
The black market for dollars has sucked up liquidity from the banking system and strained the country’s foreign reserves, which more than halved to $16.56 billion in March from around $36 billion in 2011.
In an attempt last month to close the gap between official and black market rates, the central bank devalued the currency to 8.78 from 7.73.
The gap has since grown even wider.
“There is speculation in the black market that there is going to be another devaluation so it’s a chicken and egg situation,” said Allen Sandeep, research director at Cairo-based Naeem brokerage.
“But I don’t think there will be a devaluation at the moment because they don’t want to spike inflation...given the impact on normal people on the street and their cost of living,” he added.
The central bank has sought to crack down on black market trading, meeting with bureaus to push them to sell closer to the official rate and revoking some licences over the issue.
Egypt’s public prosecution is investigating about 15 bureaus accused by the central bank of hoarding dollars, judicial sources have said. (Reporting by Eric Knecht, Nadia El Gowely, and Asma Alsharif)