Dollar and Egyptian pound (iStock)
Egyptian Pound
Investors demand a 28% return on bonds in Egyptian pounds
The Egyptian Ministry of Finance backed down from selling bonds to investors at an auction, following it refused the return required by investors who feared another drop in the value of the pound to buy Egyptian debt in the local currency.
It sold just 1.09 million Egyptian pounds ($35,275) worth of 3-year securities late Monday, the lowest it has ever collected in a domestic bond sale, according to data compiled by Bloomberg and seen by Al Arabiya.net.
The sale represented only 0.04% of the total value of the bonds offered, amounting to 3 billion pounds at the beginning. The government accepted the only offer at 21.7% following investors demanded returns of up to 28%.
This comes as demand for debt in the Egyptian local currency shrank, sending yields to record levels, amid expectations that the country may have to devalue its currency for the fourth time in just over a year.
This coincides with the divergence of the exchange rate of the Egyptian pound on the black market once morest the US dollar more than the official bank rate at a time when Egypt is struggling to secure hard currency and foreign direct investment, including from the Gulf countries. The Central Bank of Egypt also raised its main interest rate by 200 basis points last week to 18.25% in a bid to rein in inflation.
For his part, Edwin Gutierrez, Head of the Sovereign Debt Department for Emerging Markets at Abrdn Plc, said: “The parallel exchange rate indicates that the pound needs to be devalued.”
Steep decline
Derivatives traders hedge once morest the possibility of a sharp decline in the Egyptian pound. Further declines in the currency threaten to exacerbate inflation, which rose to 31.9% in February.
In the non-deliverable futures market, 12-month currency contracts fell this week, crossing 41 pounds once morest the US dollar for the first time. The pound has fallen regarding 50% since March last year and was trading around 30.8 on Tuesday in banks.
And Bloomberg reported that the Gulf countries are waiting for more certainty regarding the pound and proof that Egypt is fulfilling its commitments to reform the economy before fulfilling its promises to provide billions of dollars in investments.
The Egyptian government pledged in October to move to a more flexible exchange rate, which would enable it to seal a $3 billion deal with the International Monetary Fund.
