The Central Bank of Egypt (CBE) has decided to cut the price margin for trading the US dollar with local banks to 5 piasters from the previous 10.
The move is another step to suffocate a parallel market that has blossomed over the past two years amidst efforts to protect the Egyptian pound.
The new margin announced by CBE Governor Hisham Ramez on Thursday is based on the price of the dollar at the CBE’s foreign exchange auctions. In the last round of auctions, which took place on Thursday, the pound was kept steady at EGP 7.53 against the dollar.
“This decision, along with barring people from depositing dollars attained from the parallel market into local banks, is part of measures to terminate the black market. It leaves no incentives to deal with it,” Mohamed Abu Basha, a Cairo-based economist at investment bank EFG-Hermes Holding SAE, told Daily News Egypt.
Ramez promised investors in November to eradicate the illegal trading of the US dollar within a year, and has since issued a series of measures that drastically shrunk the business.
“Decisions taken last month placed restrictions on the depository effect, but there were no limitations to the selling effects, which this decision imposes,” Abu Basha explained.
In February, a decision was made limiting individuals and companies to depositing a maximum of $10,000 a day, or up to of a $50,000 a month. The move was aimed at disabling the purchase of large quantities of dollars and cashing them in local banks.
Measures targeting the parallel market have led to the steady drop in the value of the Egyptian pound from EGP 7.18 since 18 January. A trader said the dollar was selling for EGP 7.63 in the black market on Saturday, weaker than the official price of EGP 7.58.
Abu Basha expected such restrictive measures to continue.
“We need to see improved liquidity in the banking system, which is already happening as less dollars are leaving the system, but it’s not happening at the rate that can ease the backlog,” adding that this would probably be partially resolved by GCC pledged deposits making it to the CBE.
Egypt is due to receive in days a total of $3bn in deposit from Saudi Arabia and the UAE. This is part of a $12.5bn investment which GCC monarchies pledged during the recent Economic Summit, along with Oman and Kuwait, in the form of assistance, investments or deposits.