Egypt’s central bank summoned heads of treasury and foreign exchange departments at banks as the latest move in a series of actions to contain the parallel currency market. Previous meetings of the central bank governor with bankers preceded large extraordinary foreign currency auctions of between $1bn-1.5bn designed to narrow the gap between the official and black market exchange rates for the Egyptian Pound. The market is anticipating a similar action by the central bank as soon as today, February 5.

The central bank, through a series of foreign exchange auctions and expanding the trading margin of the Egyptian Pound’s exchange rate for banks, accelerated the depreciation of the Egyptian Pound over the past two weeks. During this period, the exchange rate of the Egyptian Pound increased from EGP7.18 to the USD to EGP7.63 to the USD in the official banking system, while, on the parallel market, the exchange rate moved from around EGP7.40 to the USD to EGP7.90 to the USD.

The market is speculating that the central bank moves, including the potential extraordinary foreign exchange auction, is paving the way for eventual free floating of the Egyptian Pound on the currency market. This rumor gained further credence last week when Mohamed El Sewedi, chairman of the Egyptian Federation of Industries, a powerful business lobby, has made statements to that same effect.

Then central bank governor Hisham Ramez on a trip to Kuwait last week stated his intention to eliminate the parallel currency market followed by media reports that Kuwait, Saudi Arabia and United Arab Emirates have created a war chest of between $7bn-10bn in fresh deposits to be made in Egypt’s central bank within the next month in support of the country's external position.