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Cairo • The Egyptian pound weakened by 10 piasters to 7.93 per dollar Thursday after the central bank reduced its price in an auction by the same amount to 7.83 per dollar. Economists had been urging devaluation and said additional weakening of the pound was still expected as foreign currency reserves continue to be depleted.
The National Bank of Egypt and other banks updated their exchange rate charts Thursday after the auction.
Egypt's foreign currency reserves fell 18.7 percent from June to September to $16.3 billion, the central bank said last week.
That "steep decline" in foreign reserves "indicates clearly that the local currency is overvalued and devaluation was needed to slow down the burn rate in the reserve base," said Hany Farahat, a senior economist at CI Capital in Egypt.
Many economists say propping up the pound was a factor in the depletion of Egypt's foreign currency reserves. Years of unrest since the 2011 overthrow of longtime autocrat Hosni Mubarak were already taking a heavy toll on sources of foreign currency, such as foreign investment and Egypt's vital tourism sector.
"We should have carried out this devaluation a long time ago," said Ahmed Abd Elnaby, strategist for the Middle East and North Africa region at Mubasher Financial Services. He added that this reduction won't halt the slide in foreign currency reserves and more devaluation will be needed.
Farahat said more devaluation was expected over the next week, to bring the pound to about 8.20 per dollar.
President Abdel-Fattah el-Sissi, a former general who led the army's overthrow of the Islamist Mohammed Morsi in 2013, has staked his legitimacy on economic revival and stabilizing the country.
Many economists say available limited foreign currency should be prioritized for local factories that need foreign currency to purchase raw materials from abroad. Such domestic operations in turn help reduce unemployment and boost economic growth.
During a Cabinet meeting earlier this month, el-Sissi hinted at measures to restrict imports of "many unnecessary goods," according to a statement from the president's office.
Egypt's central bank effectively controls the value of the domestic currency in regular foreign currency auctions.
The International Monetary Fund last month said "a more flexible exchange rate policy focused on achieving a market-clearing rate would serve Egypt's interests."
"Such a move would improve the availability of foreign exchange, strengthen competitiveness, support exports and tourism, and attract foreign direct investment," the IMF said in a statement. "This, together with the pursuit of structural reforms, should also foster growth and jobs, and reduce financing needs."
Egypt's foreign reserve woes come despite billions of dollars in aid and loans since 2011 from Gulf Arab nations.