With dollars scarce, Egypt's newly floated pound weakens

Egypt prime minister defends painful economic measures

Government efforts to shore up the currency generated a black market where the dollar reached a rate of 19 pounds - compared to 8.8 in the banks. "We could not tolerate dual (foreign currency) markets continuing". Interbank trading began at 1030 a.m. (0830 GMT) but activity was extremely slow because banks were uncertain about the propects for supply and demand of US dollars.

Frustration about the rising cost of living has prompted calls for demonstrations to protest against the government's handling of the economy.

Interbank trading began at 10:30 am (08.30 GMT) but activity was extremely slow because banks were uncertain about the prospects for supply and demand of U.S. dollars. They accuse the Brotherhood of being behind the calls for protests.

Banks were selling the US currency at 16 pounds while buying it at around 15.5 pounds on the first full business day in Egypt since the Central Bank floated the currency on Thursday.

El-Sissi, a general-turned-politician elected in 2014, has repeatedly told Egyptians in recent weeks that tough measures were needed to remedy the economy and that his government meant to do everything it could to cushion the impact of economic reforms.

Egypt has struggled to draw dollars and revive the economy since the 2011 uprising, which was followed by a drop in tourism and foreign investors, two major sources of foreign currency.

"The people of Egypt must unite and rise up for the future of Egypt and its children", the Islamist group said in a statement, without specifying a date for the protests.

Moreover, its security forces are fighting to crush an insurgency by militants led by the extremist Islamic State group in the strategic Sinai Peninsula.

Seeking to calm nerves at a time of economic tumult, the Bank said it would guarantee bank deposits in all currencies and that individuals and companies would face no restrictions in depositing and withdrawing foreign currency. The regulator also raised key interest rates 300 basis points.

But importers and dealers who bought at the top of the market are unlikely to sell until the pound hits 18, bringing dollars flooding back into the banking system to stimulate trade and stabilize the currency.

Egypt has already reduced subsidies on household electricity this year and moved this week to increase by 40 percent the price of sugar for ration card holders.

Attention now turns to the International Monetary Fund, which had tied the loan's final approval to Egypt liberalising its exchange rate and cutting energy subsidies, both carried out last week.

Nonetheless, the reception of the decision should be irrelevant for a government that could no longer delay a decision that has been crippling the economy for the past two years.

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