CAIRO: The central bank did not intervene last week to help the Egyptian pound recover from a five-year low against the US dollar and is not targeting exchange rate levels for the currency, the deputy governor said on Sunday.
The pound fell to its lowest levels since June 2005 last week against the dollar but rebounded on Thursday after the US Federal Reserve said it would buy $600 billion of government debt to spur the US economy.
The pound slid to 5.7770 to the dollar, around 5 percent weaker than at the start of the year. It is now trading around 5.7140 to the greenback.
"There were rumors in the market on Thursday that we did intervene, which was not the case. We did not intervene, the market was very active," Deputy Governor Hisham Ramez told Reuters, confirming comments carried in an Egyptian newspaper.
"We don’t really target levels," he said when asked if the bank had exchange rate targets. "We care about an orderly market and a market where the supply and demand is reflected in the price."
Some investors had been unnerved by the sharp drop in the pound because there was no sign of central bank support, and analysts said Ramez’s statement indicated the central bank would not be upset if the pound slid even further.
"He has made a very confident statement. In his view he doesn’t need to intervene," said Angus Blair, head of research at Beltone Financial.
"It indicates that the government seems content to let the pound slip slightly further to let exports become more competitive.
The lack of support prompted talk that the bank might be building up reserves to defend the pound, if needed, because of political uncertainty ahead of a parliamentary election this year and presidential poll next.
When asked if the bank was seeking to boost its reserves, Ramez said: "Of course not. You can look at our reserves number. We don’t manage our market according to this kind of talk."
Official foreign reserves have climbed steadily, though undramatically, in 2010. Reserves climbed to $35.55 billion at end-October from $35.53 billion at end-September and $34.16 billion at the end of 2009, the central bank said on Sunday.
However, analysts say the bank seems to have been building up separate funds that did not immediately appear in official figures.
"It is possible that the central bank has been using its hidden reserves to counter the outflows from the fixed income market," Blair said.
Traders say the central bank often intervenes indirectly to maintain the EGP at preferred levels via Suez Canal Bank, which receives dollar receipts from the Suez Canal Authority, and Arab African International Bank, whose capital is partly held in dollars.
Ramez played down the pound’s slide, saying the bank had announced an intervention in March 2009 when the pound was around 5.70 to the dollar. It then strengthened to around 5.45 this year before starting to weaken again, he added.
"This is not very volatile if you look at the time frame," he said. "If you look at volatility in the dollar-Egyptian pound it is still very low compared to currencies in emerging markets."
Ramez also said the central bank did not have concerns about inflation, despite the pound’s weakness. "We still see inflation under control. We are not worried about it," he said.
Concerns about Egypt’s future leadership have risen up the agenda for foreign investors. President Hosni Mubarak, 82, who has no designated successor, has not said if he will run again in 2011, although officials suggest he will.
The parliamentary election on Nov. 28 will be watched to see how much space the authorities give the opposition, who complain voting is stacked against them. Officials says voting is fair. –Additional reporting by Dina Zayed and Patrick Werr.
