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(Updates black market rate)
CAIRO, July 19 (Reuters) - Egypt's central bank kept the pound at 8.78 to the dollar at its weekly foreign exchange auction on Tuesday, data from the central bank showed.
The bank said it sold $119.4 million at its existing rate, confirming earlier comments from bankers.
Egypt is contending with an acute dollar shortage that is hampering trade, and pressure is mounting on the central bank to devalue the currency for the second time this year.
Egypt devalued the pound by about 14 percent in mid-March in an effort to crush a black market for dollars that has burgeoned amid the shortage. But the black market rate has since depreciated further, putting more pressure on the central bank to take further action. Three currency traders cited 11.75 pounds per dollar as the black market rate on Tuesday.
Economists say a devaluation is all but inevitable. Timing is key, however, to maximise the impact and minimise the inflationary effect, particularly as the government plans to introduce value-added tax (VAT) this year and has yet to complete subsidy reforms.
Egypt's last devaluation pushed core inflation to seven-year highs. The central bank has raised interest rates by 250 basis points since mid-March to slow inflation, but this has increased borrowing costs for the government and businesses.
The central bank governor, Tarek Amer, told local newspapers early this month that he believed a stable exchange rate should not come at the expense of economic production, raising expectations of an impending devaluation.
"The Egyptian pound has been held steady since March's devaluation, but persistent strains in the balance of payments mean that it needs to fall further," Capital Economics said in a research note. "Recent shifts towards more orthodox policymaking suggest that this is likely to happen sooner rather than later."
(Reporting by Asma Alsharif, Ola Noureldin and Lin Noueihed; editing by Lin Noueihed, Larry King) ((eric.knecht@thomsonreuters.com; +20 2 2394 8102; Reuters Messaging: eric.knecht.thomsonreuters.com@reuters.net))
CAIRO, July 19 (Reuters) - Egypt's central bank kept the pound at 8.78 to the dollar at its weekly foreign exchange auction on Tuesday, data from the central bank showed.
The bank said it sold $119.4 million at its existing rate, confirming earlier comments from bankers.
Egypt is contending with an acute dollar shortage that is hampering trade, and pressure is mounting on the central bank to devalue the currency for the second time this year.
Egypt devalued the pound by about 14 percent in mid-March in an effort to crush a black market for dollars that has burgeoned amid the shortage. But the black market rate has since depreciated further, putting more pressure on the central bank to take further action. Three currency traders cited 11.75 pounds per dollar as the black market rate on Tuesday.
Economists say a devaluation is all but inevitable. Timing is key, however, to maximise the impact and minimise the inflationary effect, particularly as the government plans to introduce value-added tax (VAT) this year and has yet to complete subsidy reforms.
Egypt's last devaluation pushed core inflation to seven-year highs. The central bank has raised interest rates by 250 basis points since mid-March to slow inflation, but this has increased borrowing costs for the government and businesses.
The central bank governor, Tarek Amer, told local newspapers early this month that he believed a stable exchange rate should not come at the expense of economic production, raising expectations of an impending devaluation.
"The Egyptian pound has been held steady since March's devaluation, but persistent strains in the balance of payments mean that it needs to fall further," Capital Economics said in a research note. "Recent shifts towards more orthodox policymaking suggest that this is likely to happen sooner rather than later."
(Reporting by Asma Alsharif, Ola Noureldin and Lin Noueihed; editing by Lin Noueihed, Larry King) ((eric.knecht@thomsonreuters.com; +20 2 2394 8102; Reuters Messaging: eric.knecht.thomsonreuters.com@reuters.net))
