Foreigners dump Egyptian debt for seventh month in a row; more speculation state that banks are propping up the EGP: Foreign investors exited some EGP 24.3 bn-worth of Egyptian treasuries in October, according to the central bank’s monthly statistical bulletin (pdf). Non-Egyptian holdings of treasuries stood at EGP 210.2 bn (c.USD 11.7 bn) at the end of October, down from EGP 234.5 bn (c.USD 13.1 bn) the previous month. This marks the seventh consecutive month during which international appetite for Egyptian treasuries has declined, according to Masrawy.

Is the CBE relying on state banks to prop up the EGP amid the outflow of hot money? The central bank appears to be relying largely on the National Bank of Egypt and Banque Misr to help prop-up the EGP throughout the emerging markets sell-off, according to Reuters. The strategy is meant to be an alternative to the CBE directly interfering — Governor Tarek Amer has consistently repeatedly since the late 2016 float of the pound that the central bank has stopped managing the currency. “As portfolio funds flow out … supplies of USD needed to support the EGP are mainly coming from the banking system, rather than from the central bank’s reserves,” according to seven bankers and several economists the newswire spoke to.

The policy does not pose an “immediate threat,” but it can’t last forever, economists say: Egypt’s net foreign reserves have held steady the past several months, climbing to USD 44.5 bn in September and October. Remittances by citizens working abroad also rose 20.4% y-o-y in September to USD 1.8 bn, and the EGP float managed to crush the black market for forex. “All this suggests Egypt may be able to resist pressure on the EGP for many more months or even years … But if demand for the Egyptian currency weakens further over the long term without any exchange rate adjustment, capital inflows could shrink, Egypt’s exports might become less competitive, and foreign exchange reserves could be run down.”

Background: This is exactly what Arqaam Capital said earlier this month. The firm stressed that banks are now “less shock absorbent for a future devaluation” of the EGP (however unlikely at this stage) and need fresh inflows of FX to continue acting as shock absorbers. By Arqaam’s calculations at the time, FX reserves would fall only USD 4 bn if the CBE dipped in to make the banks whole for the outflows. Capital Economics, meanwhile, suggested in a September report that the EGP’s stability in the midst of the global EM sell-off could have only come from the CBE propping up the currency.