CAIRO — EGYPT’s pound slid further on Thursday at the central bank’s fourth auction of foreign currency, with $74.9m sold to banks at a cut-off price of 6.3860 pounds, the central bank said.
This was weaker than Wednesday’s cut-off price of 6.3510 to the dollar. The currency has lost more than 3% of its value against the dollar this week. In the interbank market last week the currency closed at about 6.185 to the dollar.
The auctions, which began on Sunday, are part of a new currency regime designed to slow the depletion of the country’s foreign reserves, which the bank said had fallen to a critical level.
Egyptians will bear the brunt of inflation caused by the decline in the value of their currency.
Some importers and shopkeepers are already factoring in an even steeper declines, with the uncertainty bound to be reflected in steep price rises.
The effects of this will be keenly felt in a country that imports much of its food, including basics such as sugar, tea and cooking oil.
Around two fifths of Egyptians live on the poverty line on less than $2 a day and depend on state-subsidised staples such as bread to get by.
Though the prices of state-subsidised basics will stay the same, the cost of other imported goods will go up, further stoking anger and resentment and increasing the potential for unrest.
Political repercussions
As elections approach, President Mohamed Mursi’s Muslim Brotherhood may pay a political price.
The pound’s fall and the accompanying inflation will complicate the task facing Mr Mursi as he tries to revive an economy broken by two years of turmoil.
The confrontational politics of Egypt’s new democracy has already emerged as a major influencing factor.
Facing a backlash over his move to fast-track a constitution many see as repressive, Mr Mursi last month postponed tax rises believed to be part of an austerity package needed to secure an International Monetary Fund (IMF) loan of $4.8bn.
Mr Mursi finds himself with a stark choice: the IMF loan is viewed as essential to dig the country out of its financial crisis and avoid a potentially uncontrollable fall in the currency’s value. To get the loan, however, Mr Mursi would almost certainly have to press ahead with the unpopular measures.
Either option brings even higher political costs.
As it gears up for new parliamentary polls due to begin in less than two months, the Muslim Brotherhood’s political arm, the Freedom and Justice Party (FJP), has tried to distance itself from some of Mr Mursi’s decisions.
The FJP was the biggest party in the lower house of parliament that was dissolved in June by a court ruling.
With the Brotherhood’s popularity already in retreat, the economy threatens to further undermine its performance in the coming polls.
Reuters
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