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Diabolic Digest
Egypt sets limits on pound-dollar exchange rates
By Rachel Noeman and Khaled Diab
CAIRO, Jan 22, 2001 (Reuters) - Egyptian Prime
Minister Atef Obeid said on Monday the Central Bank would set and reinforce
"safe limits" to stem the local pound's slide against the dollar and
restore stability in Egypt's currency.
The government
responded to public concern about the pound's weakness by closing five foreign
exchange bureaux for alleged violations.
The pound, pegged for nine years at 3.3-3.4 to
the dollar, has been undergoing what analysts call a “crawling devaluation”
since it was unpegged in May. On Monday, exchange bureaux quoted the currency
at 4.09 pounds to the dollar.
“Yesterday, we charged the Central Bank with
the role of being the leader and controller of the foreign exchange market,”
Obeid said in a policy speech to parliament.
The Central Bank's role was to “determine the rate of exchange for the Egyptian
pound (against the dollar) based on the average market rate over the past three
months”, he said.
The Central Bank would ensure that banks and
exchange bureaux respect these limits and allow the dollar rate to rise
gradually within “safe and defined limits”.
Obeid said the decision aimed to bring
stability to the forex market after what he called “unlimited and unsafe
speculation in the past few weeks”.
CLAMPDOWN ON EXCHANGE BUREAUX
A Central Bank source said the economy ministry
had closed down five foreign exchange bureaux for breaking market rules.
“The bureaux were closed on Monday, four of
them for periods of between two and six months and one permanently”, he said,
naming them as Mecca, Alexandria International Exchange Co, Rehab Exchange Co,
Pitco Company for Financial Transactions and al-Basha.
The source said Mecca had been closed
permanently. Khaled
Ibrahim Mohamed, manager of Mecca, confirmed the bureaux had been shut, but
told Reuters it hoped to reopen, perhaps after an appeals committee has met in
a month's time.
David Lubin, economist at HSBC in London, told
Reuters the authorities appeared to be unhappy about the exchange rate
exceeding four pounds to the dollar. “On the basis of the information that has
been presented to the market so far, it seems that the Egyptian authorities are
seeking to re-peg the pound, albeit with a small fluctuation zone around the
peg,” he said.
Hassan Choucri, head of sales at HC Securities
in Cairo, said many foreign investors would react negatively to a swing back
away from market forces in foreign exchange policy. “A lot of people were
hoping to see forces of supply and demand determine the currency price,” he
said.
He said a negative reaction among foreign
investors was behind some selling of big cap shares on Monday. But the
benchmark Hermes Financial Index still ended higher, closing up 108.21 points,
or 1.5 percent, at 7,322.33.
A broker at another Cairo brokerage said there
would be some positive effects of stemming the decline in pound-dollar rates
for some big cap stocks like mobile phone operators, which pay a large part of
their licence fees in dollars. Mobile phone operator Egyptian Company for
Mobile Services (MobiNil) is heavily weighted in the Hermes index.
ã2004 K. Diab. Unless otherwise stated, all the content on this website
is the copyright of Khaled Diab.