Forex Market Remains Theatre of the Managed, the Marginal

Feb 7 , 2026.

The foreign exchange market has become less a platform for genuine price discovery and more a managed showcase, where the real action unfolds away from the main stage.

For the past week, banks posted their cash buying rates for dollars in a corridor as narrow as 151.6 Br to 153.6 Br, with selling rates edging two percent higher. The official “market” moved in fourth-decimal-place increments, producing an illusion of activity while real volatility simmered elsewhere.

The National Bank of Ethiopia (NBE) was the central actor. For several days, the Central Bank published buying and selling rates matched exactly, zero spread, broadcasting its direct control rather than any willingness to let prices float.

On February 6 and 7, 2026, it moved its bid to 155.48 Br to the dollar, instantly becoming the market’s strongest price. Private banks fell in line, but never outbid the regulator. It was obedience, not competition.

The Central Bank auctions off hard currency more frequently than in the past. Last week, it offered 70 million dollars; 19 banks bid, and only eight succeeded. The weighted average winning bid of 155.05 Br barely differed from the Central Bank’s posted rate.

In total, bids reached 127 million dollars, an oversubscription that revealed how much pent-up demand stalked the formal market. In effect, the real market-clearing price was not set by day-to-day trading, but by the Central Bank’s hand on the auction lever.

Within this corridor, banks played familiar roles. Oromia Bank set aggressive quotes at the upper limit of the corridor. Zemen Bank inched near this ceiling. Three of the big five - Awash, Wegagen, and Bank of Abyssinia - moved together in virtual lockstep. Dashen Bank took a more defensive posture, sticking to the lower edge.

But the real outlier was the Commercial Bank of Ethiopia (CBE). Its official rates did not budge all week, yet managers quietly offered large suppliers a “bonus” of up to 10 Br above the screen rate, creating a hidden, two-tier market.

Step outside the banks and a different reality emerges. On the parallel market, the dollar traded as high as 189.48 Br, over 23pc above the official rate. The gap (25 Br to 34 Br to the dollar) was not a fluke. It persisted over several days.

While banks competed in decimals, street dealers cleared trades in tens. The lesson remains that real price discovery has migrated out of official channels, with the parallel premium the most accurate barometer of scarcity.

Importantly, this was not a week of shocks. No sudden policy change, remittance surge, or new demand spike occurred. Yet buying rates of the industrial average slipped 0.14 Br, the first such drop since last July’s “controlled float.” This dip and the subsequent mild rebound revealed administrative nudging, not supply and demand.

Banks “adjust” in tiny increments to remain within the two percent spread, which is itself a creature of policy. The effect was stasis, with volatility suppressed rather than resolved.

Since the Central Bank announced its controlled float last July, critics have warned that the foreign exchange regime would remain cosmetic, unless backed by deep reserves and a credible commitment to market-making. Last week’s market tape supports this. The birr ticked up and down, but the structure held firm, revealing a system where the Central Bank’s “quote” was both ceiling and floor.

Market watchers focus on four indicators: If banks keep bidding double the available dollars, pressure will mount; if the gap between the official and parallel markets stay above 20pc, the system is rationing rather than clearing demand; any tweak in the spread signals emerging risk or policy stress; and, a growing sweetener in the form of bonus by the CBE and some of the private banks means formal rates are losing meaning.

As long as the gap between the official and parallel markets persists, and as long as the Central Bank remains the dominant dealer, the forex market is not run on an actual float, but a managed glide path. The strategy buys time as authorities negotiate with international creditors and the IMF.

A gradual devaluation could ease external imbalances, but would hit consumers with higher costs and inflate debt.

Meanwhile, the system’s logic is inherently political. Importers pay an implicit tax, borrowers enjoy legacy subsidies, and the true market is neither transparent nor accessible to most.

Coffee export season, approaching its peak, might bring temporary hard-currency relief. If the Central Bank can ramp up auction volumes and keep the street premium in check, the current arrangement could limp along. If not, the corridor will be forced wider, by markets or by policy.

Either outcome carries risks. A sudden snap could unsettle inflation and debt dynamics, while a slow adjustment could sap credibility.

Until the fundamentals change, when hard-currency inflows rise, or the policy is rethought, the exchange rate will be set by what is tolerated, not what is discovered.

PUBLISHED ON Feb 07,2026 [ VOL 26 , NO 1345]