CAIRO: Egypt’s central bank warned on Wednesday that it was prepared to intervene directly in the currency market again after purchases on Tuesday strengthened the pound by more than 1 percent.
The Egyptian pound has been falling steadily since political protests broke out on Jan 25, and traders and strategists expect more losses. UBS analysts put the potential decline at as much as 25 percent within a month.
"We will intervene when we see the market is not orderly. If it is not, we will use our tools," Deputy Governor Hisham Ramez said by telephone, adding that the market so far on Wednesday had been quiet and orderly.
He said the central bank was concerned that the market be based on "real supply and demand." "Yesterday the market was more speculative, so we came in," Ramez said.
The intervention boosted the currency as much as 1.4 percent after it briefly hit a six-year low. On Wednesday, the pound closed at 5.8775 to the dollar, only marginally weaker than 5.876 at Tuesday’s close.
Dealers said traders were holding back on Wednesday after the intervention caught many players out.
"There is very small volume and very small amounts," said a currency dealer at a Cairo-based bank. "I think the banks are being cautious until real activity starts."
One trader estimated that volume on the interbank currency market on Wednesday had fallen to about $300 million from $1.6-1.7 billion on Sunday and $1 billion on Monday before the intervention.
Traders put volume in normal times at $300-400 million.
"People are a bit scared so far," said a dealer at a second bank.
Egypt’s banks and treasuries reopened on Sunday after having shut their doors for a week, and traders said the intervention seemed designed both to deter speculators and to restore confidence before the stock market reopens next week.
The fate of the pound could also play a big role in determining the extent to which shares are hurt by the crisis.
Analysts have warned of a renewed sell-off by spooked investors once trading resumes on the stock exchange after a two-week closure. The benchmark index plunged by 16 percent in the two days the exchange was operating after anti-government protests erupted on Jan. 25.
Egypt’s financial regulator said the stock exchange will suspend trade for a half hour if its broad 100-share index declines by 5 percent after it reopens, and even longer if it falls by 10 percent.
Asked if he was concerned about the resumption of share trading, Ramez said: "I think we passed through the toughest time when we saw the bank closure."
Traders said the central bank had intervened without dipping into foreign reserves, and one trader estimated the size of the intervention at "not less than $1 billion and not more than $1.6 billion."
"This will make people think twice before taking positions on the dollar," the trader said.
A currency dealer in London said non-deliverable forwards were still better bid than offered on Wednesday.
"Banks and corporates are trying to hedge their exposures, and everybody is waiting to see what Sunday will bring, when outflows are expected," he said.
