The Egyptian pound weakened by 10 piasters to 7.93 per dollar Thursday after the central bank reduced its price in an auction by the same amount to 7.83 per dollar. Economists had been urging devaluation and said additional weakening of the pound was still expected as foreign currency reserves continue to be depleted.
The National Bank of Egypt and other banks updated their exchange rate charts Thursday after the auction.
Egypt’s foreign currency reserves fell 18.7 percent from June to September to $16.3 billion, the central bank said last week.
That “steep decline” in foreign reserves “indicates clearly that the local currency is overvalued and devaluation was needed to slow down the burn rate in the reserve base,” said Hany Farahat, a senior economist at CI Capital in Egypt.
Many economists say propping up the pound was a factor in the depletion of Egypt’s foreign currency reserves. Years of unrest since the 2011 overthrow of longtime autocrat Hosni Mubarak were already taking a heavy toll on sources of foreign currency, such as foreign investment and Egypt’s vital tourism sector.
“We should have carried out this devaluation a long time ago,” said Ahmed Abd Elnaby, strategist for the Middle East and North Africa region at Mubasher Financial Services. He added that this reduction won’t halt the slide in foreign currency reserves and more devaluation will be needed.