Lion International Bank (LIB), a mid-sized private bank, aggressively led the market - for a second week in a row - offering the highest buying rate at an average 131.10 Br for a dollar. On the selling side, Tsedey Bank, a smaller private bank, posted the week's highest average selling rate at 133.21 Br, revealing fluid market conditions. Lion Bank’s notably high selling rate, almost one Birr above most competitors, was perceived by analysts as either a liquidity-driven necessity, speculative positioning, or targeted market segmentation.

The state-owned Commercial Bank of Ethiopia (CBE) maintained conservative pricing, offering the lowest rates across the industry, at 124 Br for buying and 126 Br for selling. Dashen Bank, another prominent financial institution, similarly adopted a cautious strategy, with minimal daily fluctuations and consistently lower rates than private competitors. Dashen’s pricing reaffirmed its image as a conservative, stability-focused bank, preferring risk-averse operations over speculative gains.

Newer and smaller banks showed greater volatility, frequently adjusting their rates. Analysts believe this variability reflected their opportunistic and uncertain liquidity positions, rather than broader macroeconomic fundamentals.

The spreads between banks' buying and selling rates, reflecting their strategy to manage currency risks and profit margins, also varied. Dashen Bank and CBE kept their spreads narrow — between 2.34 Br and 2.39 Br — unveiling cautious risk management. Goh Betoch, Tsedey, and Lion banks employed much wider spreads exceeding three Birr, with Goh Bank hitting the widest margin at 3.38 Br. Market watchers pointed out such broad spreads as evidence of severe foreign currency shortages and banks' defensive postures anticipating further Birr depreciation.

The gap between the official and market exchange rates continues to widen, reinforcing an informal dual-exchange rate system. CBE’s official quoted rates stood below private bank rates. Private banks, however, consistently posted much higher rates, between 130 Br and 133 Br for a dollar. Analysts view this divergence as a manifestation of insufficient market-driven transparency and inefficient price discovery mechanisms.

Economists link the current pressures on the Brewed Buck to deep-seated macroeconomic issues, such as persistent trade deficits, rising foreign debt obligations, and inadequate foreign currency inflows from critical sectors. Banks’ rate-setting behaviors revealed widespread expectations of continued currency depreciation, employing spreads as a tactic to ration scarce dollars. The largely static rates posted by banks during the week uncovered market inefficiencies, possibly influenced by informal regulatory ceilings or conservative caution. Experts see the rigidity as a result of a lack of genuine competition among the banks, further complicating transparent price discovery.

Since the liberalisation of its forex market in August, most argue that it is partial liberalisation, and Central Bank Governor Mamo Mihretu faced a tough dilemma. Persistent inflation has discouraged a full currency float, due to concerns that further liberalisation might aggravate consumer price pressures. However, the behaviour of banks and businesses increasingly incorporates future currency depreciation into their pricing, anticipating an eventual alignment of official exchange rates with market realities.

The fluctuations and strategies observed among the banks revealed deeper economic vulnerabilities. Analysts forecast continued depreciation pressures on the Birr in the absence of substantial firepower from the Central Bank. This outlook raised concerns about sustained inflationary effects, potential erosion of public trust in the banks, and lack of confidence in the broader economic recovery efforts.

PUBLISHED ON Apr 06,2025 [ VOL 26 , NO 1301]

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