Egyptian pound falls on refusal of dollar aid

What's Down: Egypt's currency declines to the lowest since mid-April after the country's government rejected previously arranged loans from the IMF and World Bank.

Egypt's currency dropped to its lowest against the US dollar in more than two months after the country's government said it would not need US$3 billion of financing from the IMF and $1bn of budget support proposed by the World Bank.

The pound was at 5.9590 to the dollar yesterday after touching 5.9620, its weakest since April 14.

"It looks like they do not want to borrow dollars, which would presumably weigh on the country's economy, and rely on local debt to finance the budget instead," said Moustafa Assal, the managing director of the fixed income unit at Beltone Financial in Cairo.

Traders said the currency sell-off was sparked by foreign investors exiting equities after receiving dividend payments.

"Foreigners definitely see it as a bad move for the government to turn down this aid," a forex trader in Cairo told Reuters. "We started to see them selling pounds last week after the government revised its budget, and now some locals are selling too."

Egypt's benchmark declined 0.7 per cent to 5,438 yesterday.

The country's central bank has used official and unofficial reserves of more than $15bn since January, the beginning of the revolution that ousted Hosni Mubarak from the presidency. Mr Assal says the bank has been using reserves to support the pound.

"There has been a lot of pressure on the currency of late from the lack of dollar revenue from the total economy," Mr Assal said. "Foreign direct investment, Egyptian remittances from abroad and the reduction in exports from the Egyptian economy, which were a major source of dollars for the country, have significantly reduced since the revolution," he said.

The country last week raised less than half of the 7bn Egyptian pounds it sought at a treasury bill sale, as the average yield on the six-month paper jumped the most in more than a month.

The ministry of finance accepted bids for 2bn pounds of six-month notes out of the 3.5bn pounds it hoped to sell. The average yield rose 15 basis points, or 0.15 of a percentage point, to 12.791 per cent, compared with an auction last week of bills with a similar maturity.