UPDATE 1-Egypt's central bank weakens pound to 7.83 pounds to the dollar
Egypt's central bank allowed the Egyptian pound to weaken to 7.83 per dollar from 7.73, the first official depreciation since July and which economists say is needed to ease a foreign currency crisis and support dwindling FX reserves.
The Egyptian central bank sold $39.6 million at its Thursday dollar auction at a cut-off price of 7.8301 pounds per dollar.
The pound also weakened on the parallel market. Two traders at currency exchange bureaus said the pound was changing hands at 8.22/25 to the dollar, weaker than the 8.15/18 quoted on Tuesday.
The central bank had kept the pound at 7.5301 for five months until July, when it was allowed to slide to 7.6301. On July 5, the bank let it slip a further 0.10 pounds.
Egypt has been faced with a foreign currency shortage exacerbated by what many economists consider to be an overvalued pound, the maintenance of which has cost the country billions in currency reserves since the 2011 uprising.
Foreign currency reserves, which stood at about $36 billion before the uprising, were $16.335 billion at the end of September despite billions of dollars in Gulf Arab aid since mid-2013.
Egypt has sought to tame a once-thriving currency black market with measures such as a cap on dollar-denominated bank deposits.
While the measures have largely succeeded in drying up the black market for dollars, they have also starved manufacturers of foreign currency they need to import raw materials and machinery, stifling economic output.
Allowing the pound to weaken in a controlled way could boost exports and attract further investment, but it also raises Egypt's already large bill for imported fuel and food staples.