Birr's relentless depreciation against the U.S. Dollar took a brief pause last week as the New Year holiday introduced an unusual calm to the forex market. Yet, beneath the surface, banks were intensifying efforts to counter the thriving parallel market by offering lucrative incentives to attract foreign currency inflows through official channels.

The New Year, celebrated on September 11, effectively paused much of the market activities, bringing a subdued atmosphere to the forex market. The temporary calm provided a respite from the relentless pressure on the Birr. However, the underlying issues driving the currency's depreciation remain unaddressed, and banks seem acutely aware of the challenges posed by the parallel market, where exchange rates outpace official offerings.

The persistent discrepancy between official exchange rates and the parallel market continues to vex the market. Leading banks are actively incentivising remittance flows through bonuses and interest top-ups. The data for 17 commercial banks leading up to September 14 unveiled a marketplace where the Birr's depreciation is shaped not only by macroeconomic pressures but also by tactical adjustments from individual banks. The competition to offer higher rates, particularly for remittance inflows, demonstrated the formal banking industry's determination to contend with the parallel market.

Leading the charge, the state-owned Commercial Bank of Ethiopia (CBE), Awash International Bank (AIB), and Bank of Abyssinia (BoA) have rolled out a generous 16pc interest rate top-up for their respective customers who remit foreign exchange into their domestic savings accounts. Their executives hope to see their move narrow the widening gap between official exchange rates and those in the unofficial market, a disparity exacerbating the Birr's decline.

From September 9 to 14, exchange rates across banks displayed a mix of volatility and predictability. AIB emerged as a standout player, consistently offering the highest rates for buying and selling dollars. Its average buying rate peaked at 115.1 Br to the Dollar, while its selling rate averaged 121.06 Br. Despite these aggressive rates designed to attract forex, AIB maintained a moderate spread of 5.2pc, balancing competitiveness with profitability.

In contrast, Hibret Bank adopted a more cautious stance, providing the lowest average buying rate at 106 Br. Its selling rate averaged 119.78 Br, resulting in a substantial spread of 13pc. Bank of Abyssinia offered the lowest average selling rate at 115.43 Br, positioning itself strategically amid the market's competitive dynamics. Mid-tier banks such as Wegagen Bank maintained relatively stable positions during the six-day period, with buying rates averaging 112 Br. These banks exhibited higher-than-average spreads, with Abyssinia's spread reaching 12pc.