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Central Bank Launches High-Stake Auction to Quell Dollar Demand

Aug 6 , 2024

The National Bank of Ethiopia (NBE) is set to launch a Special Foreign Exchange Auction tomorrow, August 7, 2024, designed to stabilise the shaky forex market. The move comes in response to the mounting pressure on the Birr and the increasing demand for US Dollars in the financial sector.

The weighted average bid price of all successful bids will be revealed in mid-afternoon, giving market participants valuable insights.

The Central Bank has set a cap, hoping to prevent a single bank from snagging more than 20pc of the total funds available at the auction. The regulation also seeks to create a competitive bidding environment, ensuring that all players have equal access to foreign exchange resources. Winning banks will secure Dollars at their bid price, with settlements taking place on the same day.

The auction, reminiscent of the mid-1990s, arrives at a critical juncture for the banking industry, which is besieged by a foreign currency shortage exacerbated by global economic trends and local demand. Analysts agree that these auctions are crucial for injecting much-needed liquidity into the banking system and stabilising the exchange rate, traded 84pc higher since the foreign exchange regime liberalization on July 29.

The NBE's initiative is expected to alleviate some of the intense forex pressures faced by local businesses and financial institutions. If successful, the auction may open doors for future central bank interventions bolstering economic stability and confidence in the national currency.

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