Fortune News | Mar 07,2020
The Birr's depreciation against the US dollar has notably accelerated over the past week, unfolding the economic impact of the central bank's decision to float the currency a month ago. Following the major policy shift, liberalising the foreign exchange market, the market has seen rapid fluctuations in exchange rates, with the Birr losing value steadily.
Between September 2 and 7, 2024, a downward trend was observed as the Birr weakened across both buying and selling rates. A comparative analysis of the exchange rates posted by 17 commercial banks revealed a depreciation pattern that, while consistent, saw varying levels of intensity among different banks. The most noteworthy movements can be traced to the policies driving a new market-driven approach to forex trading, with the central bank stepping back from previously rigid controls.
The higher selling rates last week signalled the unrelenting depreciation of the Birr relative to the dollar, which reflects the ongoing economic pressures such as inflation, demand for foreign currency, and broader economic adjustments. While minor, the fluctuations in rates across different banks indicated variations in institutional pricing, which could be driven by each bank's foreign currency reserves and their approach to managing supply and demand.
A dollar's six-day average buying rate was 109.26 Br, while the average selling rate was around 119.42.
Wegagen Bank (WEG) and Awash International Bank (AIB) recorded the highest average for buying the dollar during this period, posting around 115 Br. Berhan International Bank (BIB) and OIB posted the lowest average for buying, both of which hovered near 104.21 Br and 105.44 Br, respectively, throughout the six-day window. For selling, the highest rates were posted by OIB, reaching a peak of 123.93 Br on September 7, reflecting aggressive forex pricing strategies possibly sought to gain a competitive edge in this newly liberalised market.
Enat Bank (ENT) observed the lowest selling rates at an average of around 120.53 Br, slightly below the competitive benchmark set by larger banks.
The rapid shifts in the exchange rate can be tied directly to the federal government’s policy shift that floated the Birr in an attempt to ease pressure on the parallel market and attract remittances. Governor Mamo Mihretu attributed last week the narrowing gap between the official and parallel market rates to this policy change. However, the liberalised policy has opened the foreign exchange market to greater volatility as market forces, rather than official mandates, now determine the exchange rate.
Banks have responded variably to this new environment. Those with strong forex demand, such as Oromia International Bank (OIB), have seen outlier behaviour, with a notable divergence between buying and selling prices. OIB, in particular, posted one of the widest spreads at 15pc, three percentage points higher than the average last week, signalling the bank’s focus on forex trading for profit margins.
Another bank exhibiting outlier behaviour was Dashen Bank (DSH), which consistently posted spreads around 12.5pc, even as others trended lower, indicating an equally aggressive stance toward the market. This could reflect liquidity pressures or a calculated effort to position themselves as a market leader in the post-liberalisation market.
By contrast, Wegagen and Awash banks showed more conservative trading practices, with lower spreads of around 3.2pc to 3.7pc. These banks appear to have adopted a more moderate standing, likely positioning themselves to attract steady retail and corporate clients by maintaining more favourable exchange rates. Their behaviour reflects a cautious approach to the evolving market conditions, balancing profitability with customer retention.
Smaller institutions like Enat Bank have remained cautious, likely due to smaller forex reserves or a lack of capacity to compete with larger players in this high-risk, volatile environment. Enat Bank’s behaviour could reflect smaller banks' limitations in a liberalised forex market, where competitive pricing requires large reserves and strategic positioning.
The policy change has undoubtedly reshaped the market dynamics, but with the Birr continuing its slide against the US dollar, the central bank’s role in moderating future volatility will be crucial. As banks navigate this uncertain landscape, their forex trading strategies will likely become more aggressive, seeking to balance profitability with the need to maintain liquidity in the face of growing demand for foreign currency.
PUBLISHED ON
Sep 08,2024 [ VOL
25 , NO
1271]
Fortune News | Mar 07,2020
Fortune News | Aug 05,2023
Fortune News | Jul 21,2024
Fortune News | Sep 22,2024
Fortune News | Aug 19,2023
Viewpoints | Apr 03,2021
Radar | Sep 11,2020
Radar | Jul 23,2022
Fortune News | Apr 13,2024
Radar | Oct 24,2020
Aug 18 , 2024 . By AKSAH ITALO
Although predictable Yonas Zerihun's job in the ride-hailing service is not immune to...
Jul 13 , 2024 . By AKSAH ITALO
Investors who rely on tractors, trucks, and field vehicles for commuting, transportin...
Jul 13 , 2024 . By MUNIR SHEMSU
The cracks in Ethiopia's higher education system were laid bare during a synthesis re...
Jul 13 , 2024 . By AKSAH ITALO
Construction authorities have unveiled a price adjustment implementation manual for s...
Nov 2 , 2024
Addis Abeba, fondly dubbed a 'New Flower,' is wilting under the weight of unchecked u...
Oct 26 , 2024
When flames devoured parts of Mercato, residents watched helplessly as decades of toi...
Oct 20 , 2024
Central Bank authorities have unveiled no less than six new guidelines to fine-tune t...
Oct 12 , 2024
In his inaugural address on October 27, 2024, Taye Atseqesellasie, the fifth presiden...
Loading your updates...