Home MoneyBanks Egypt Boosts FX Sale For Commodities As S&P Warns On Inflation

Egypt Boosts FX Sale For Commodities As S&P Warns On Inflation

by Amwal Al Ghad English

Egypt’s central bank will offer a record $800 million at a currency auction to local lenders today to finance imports of staple foods and medicines after Standard & Poor’s warned of accelerating inflation.

The regulator, which normally offers $40 million at each auction, is holding a second so-called exceptional sale specifically targeting basic commodities. It sold $600 million at the first such auction last month. Egypt said this month it received $3 billion in aid from Qatar, helping replenish foreign reserves that stood at $14.4 billion, covering about three months of imports, at the end of April.

Depreciation of the pound at the sales helped fuel inflation, pushing consumer prices up 1.5 percent in April from March, driven by a 2.7 percent surge in food prices, according to government data. The central bank has given banks more than $3 billion since starting the auctions to ration the supply in December. The pound was unchanged at 6.9819 a dollar at 9:51 a.m. in Cairo. It lost 11 percent since the start of the sales.

“The depreciating exchange rate, together with increasing central bank financing of the government, is likely to lift inflation in Egypt above already relatively high levels,” Trevor Cullinan, a Standard & Poor’s credit analyst, said in a report yesterday. “Strong inflation growth through an erosion of real incomes would reduce the already low standard of living for the majority of the population.”

Banks are required to sell the dollars from today’s auction to clients that import food including wheat, milk, oil, meat and poultry, medicines, capital goods spare parts, raw materials and intermediary production components, the central bank said. Quotas that limit how much banks can receive at the sales are inapplicable today.

The yield on the government’s benchmark $1 billion of 5.75 percent bonds due in 2020 advanced for a fifth day, rising two basis points, or 0.02 of a percentage point, to 7.55 percent. That’s the highest level on a closing basis since April 5.

Bloomberg

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