While most commercial banks slightly adjusted their exchange rates upward last week, the state-owned Commercial Bank of Ethiopia (CBE) has kept its buying rate fixed at 124 Birr for a dollar for nearly four months, making it the clearest outlier in the market.
Between March 17 and 22, the average buying rate across the largest private banks was around 128 Br to 129 Br, while selling rates slightly exceeded this range, settling around 129 to 130 Br. The National Bank of Ethiopia (NBE), adjusted its weighted average upward to 129.46 Br, revealing ongoing attempts by regulators to align the Brewed Buck with broader market conditions. Birr has continued its slide notably against the US Dollar (Green Buck) over the past week, exposing widening gaps in foreign exchange rates among major banks.
The most noticeable difference emerged with ZamZam Bank, which posted a buying rate of 130.8 Br, much higher than the CBE and its private competitors. This has increased the differential between ZamZam and the CBE to around 5.5pc, sharply contrasting the 0.81pc margin recorded between the lowest and highest buying rates only a few months ago.
The market stratification has resulted in a three-tiered system.
At the bottom, the CBE has remained steadfast at its 124 Br mark, unmoved by market pressures or currency fluctuations. A cluster of private banks, including major players like Awash, Zemen, Wegagen, Abyssinia, and Dashen, have positioned themselves centrally, cautiously increasing their rates to around 128 Br. At the top end, ZamZam Bank stands alone, setting higher rates and pushing the market's average upward.
According to market watchers, amid the persistent liquidity constraints, the widening gap unveiled increased competition among banks to secure scarce foreign exchange, particularly the dollar. ZamZam’s aggressive rate-setting may signal an intensified push to attract foreign currency inflows, differentiating itself from the more conservative positions taken by other banks. Industry insiders acknowledge that banks operate under substantial regulatory oversight, with the Central Bank closely monitoring rate adjustments to prevent volatility.
Private banks often tread carefully, opting for incremental adjustments rather than abrupt shifts, staying largely aligned with official guidance, albeit informal. The cautious environment has heightened the visibility of ZamZam’s pronounced moves.
The CBE's refusal to adjust its exchange rate could indicate its unique position as a state-owned entity that is less driven by competitive pressures to attract foreign currency deposits. Maintaining a lower buying rate has positioned itself as the market’s most conservative player. However, some analysts speculate that such prolonged inertia could also signal internal policy rigidities or strategic choices designed to serve broader monetary policy objectives.
Despite the increased divergence among banks, the overall market has witnessed only a moderate depreciation of the Birr, consistent with broader global trends of dollar strength and domestic economic headwinds. Nonetheless, this modest weakening disguises the underlying dynamics of heightened competition and strategic positioning among financial institutions, which could have broader implications for the financial stability and policy direction.
The Central Bank’s incremental upward adjustment of its rate signalled an official recognition of market realities but has not triggered uniform responses among private banks. Instead, it appears to have given room for some banks to selectively recalibrate rates according to their liquidity needs and competitive strategies. The differentiated response demonstrated the delicate balance banks should maintain between regulatory compliance and the economic imperative to secure adequate foreign exchange resources.
In aggregate terms, averaging the recent rates showed private banks have coalesced around a midpoint buying rate near 128.5 Br and a selling rate around 129.5 Br for a dollar, excluding extreme outliers. ZamZam Bank’s higher rates, which regularly shift slightly based on market demand, have consistently marked the upper boundary of this range.
If current trends persist, the widening gap between ZamZam Bank and the CBE could evolve into an important indicator of confidence and liquidity in the financial sector. Analysts warn that sustained divergences could eventually expose deeper policy conflicts or market fragmentation, prompting either regulatory intervention or adjustments by banks to respond to imbalances.
For now, the Birr’s depreciation remains gradual, but the differences in exchange rates among major financial institutions have become increasingly pronounced. Whether this stratification results in greater market fragmentation or pushes banks toward convergence will likely depend on evolving regulatory responses.
PUBLISHED ON
Mar 23, 2025 [ VOL
25 , NO
1299]
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