Featured | Jan 02,2021
The Brewed Buck's persistent depreciation against the US Dollar continued unabated over the six days of last week, uncovering the mounting pressures on the fragile economy, besieged by a severe liquidity crunch gripping the financial system.
Last week's exchange rate showed a gradual weakening of the Birr, with noteworthy disparities among banks having a mix of competitive tactics and regulatory pressures.
At the forefront of this trend is Dashen Bank, which has consolidated its position as the market leader for the fourth consecutive week. It consistently posted the highest selling and buying rates, outpacing competitors like Awash Bank, the Bank of Abyssinia, Wegagen Bank, and Berhan Bank. Dashen Bank's dominance emerges against a backdrop of deepening liquidity shortages in Birr, fuelled by the Central Bank’s loan growth cap, which has drained essential cash from the market.
The average buying rate for the dollar among banks reported last week at 123.5 Br, while the average selling rate hovered around 126.4 Br. Dashen Bank maintained a clear lead, with its selling rate peaking at 127.21 Br. Hibret Bank recorded the lowest buying rate at 121 Br last week, projecting a more conservative stance in the foreign exchange market.
The Bank of Abyssinia, Oromia, and Gadaa banks, which have been strong players in the forex market since the currency market was liberalised in July this year, lagged behind Dashen Bank's aggressive rates.
An unexpected development surfaced last week. The Central Bank posted uncharacteristically high exchange rates, nearly matching those of Dashen Bank and above the industry’s average. On November 29, its buying rate climbed to 124.18 Br, while its selling rate reached 126.36 Br.
Analysts interpret this move as the Central Bank's active intervention in a market gripped by an acute scarcity of Birr. Such actions may signal policy shifts in response to the liquidity crunch, yet they also reveal systemic stress and the complexities of managing a highly strained foreign exchange regime.
The liquidity crunch in the Birr market remains the central issue, depriving businesses and individuals of the local currency needed to obtain scarce dollars. The Central Bank’s loan growth cap has heightened the situation, limiting commercial banks' ability to extend sufficient credit to meet the economy's working capital requirements. Intended to curb inflation and stabilise the monetary system, the regulatory measure has inadvertently stifled the private sector and created bottlenecks in the foreign exchange market. The scarcity of Birr has left potential buyers of foreign currency stranded, amplifying demand-side pressures and reinforcing a cycle of depreciation.
Certain outliers among commercial banks attracted attention. Berhan Bank and Wegagen Bank, traditionally competitive, posted rates marginally below the leaders, signs of a cautious approach during times of volatility. Notably, Sidama Bank's sudden increase in its spread to 2.01pc on November 28 raised eyebrows for deviating from the Central Bank’s quietly placed limit on the industry.
Almost all banks exhibit unwavering consistency in maintaining a spread of two percent, evidence of a broader industry adherence to regulatory requirements that discourage deviation. However, notable fluctuations in spreads were recorded for the Central Bank, which occasionally posts spreads below the standard, dipping to 0.79pc last week.
Patterns in buying and selling rates reveal a duality of approaches among banks. A number of them clustered tightly around similar rates, unveiling shared pricing strategies and the influence of directives issued by Governor Mamo Mehiretu.
However, a smaller subset of banks displayed slightly divergent behaviours, with modest variations in their posted rates, a sign of an independent pricing strategy. The divergence could reveal a nuanced approach to capturing niche market segments or leveraging specific liquidity conditions.
Banks such as Dashen Bank consistently post rates on the higher end of the spectrum, perhaps positioning themselves as premium service providers within the forex market. Others, like the Cooperative Bank of Oromia (Coop Bank), tended to align with the median, a more conservative position at maintaining market neutrality.
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Dec 01,2024 [ VOL
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