Egypt’s president held out hope that a weakening pound could stabilise within days under a new regime implemented to fend off financial ruin and safeguard reserves needed to ensure food and fuel imports in a political crisis.
Hit by political turmoil in the last month, the currency weakened to a record low on Sunday in a new dollar auctioning system implemented by the central bank.
The official rate worsened further at its second auction on Monday, with banks taking up the $75 million on offer at a cut off rate of 6.305, sending its traded market rate to a record low of around 6.35 per dollar.
“The market will return to stability,” President Mohamed Mursi said in remarks during a meeting with Arab journalists on Sunday evening, the state news agency MENA reported.
The pound’s fall “does not worry or scare us, and within days matters will balance out,” he added.
The auctions are part of a shift announced on Saturday and designed to conserve foreign reserves, which the bank says are now at “critical” levels that cover just three months of the food, fuel and other goods Egypt imports.
The head of the Egyptian banking federation said the new system of foreign exchange auctions was an “important first step” towards a free float of the pound.
Tarek Amer, who is also chairman of Egypt’s largest bank, state-owned National Bank of Egypt, said the new system was a success on its first day and had “significantly reduced” demand for dollars.
The central bank accepted bids worth $74.8 million on Monday, with the cut-off price weakening from 6.2425 Egyptian pounds on Sunday. Before the first sale on Sunday it had traded as strong on the interbank market as 6.185 to the dollar.
Political turmoil over a new constitution has sent worried Egyptians scrambling to turn their savings into dollars, prompting officials last week to impose controls on how much cash could be physically carried out of the country.
The changes announced on Saturday include regular foreign currency auctions and commercial bank officials say they point to an orderly devaluation of the pound after the central bank spent more than $20 billion – or more than half of its reserves – over the past two years to defend the currency.
The currency crisis underlines the scale of the economic challenge facing President Mursi, who has been grappling with the fall-out of a political crisis ignited by his move to drive through a constitution written by his Islamist allies.