Tuesday, 7 February 2012

Egypt: reserves low, tempers high | beyondbrics – FT.com

While Egypt makes headlines with its political crisis and street violence, behind the scenes another danger is lurking: its foreign exchange reserves are shrinking, with another sharp drop last month.

Reserves were down to $16.4bn at the end of January, compared to $18.1bn in December and $36bn in December 2010, just before the anti-Mubarak protests began, according to central bank data published on Tuesday. The pressure for political stability – and an IMF rescue – grows bigger by the day.

Heavy intervention by the central bank has helped keep the Egyptian pound steady through the turmoil, with losses against the US dollar of under 4 per cent last year. But as reserves dwindle its firepower is weakening. As Bloomberg reported, forward contracts indicate traders expect a 16 per cent decline in the pound over the next 12 months.

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