An escalating divergence in the foreign exchange market is rattling confidence in the Birr, (Brewed Buck), as banks aggressively compete amid acute shortages of foreign currency. Despite recent interventions by the National Bank of Ethiopia (NBE), including a special 60 million dollars auction meant to stabilise the currency, the Birr continued its downward slide, shedding around 2.1pc of its value in two weeks.
Private banks have increasingly adopted aggressive strategies, betting on further depreciation, while the state-owned Commercial Bank of Ethiopia (CBE) remains noticeably conservative. The disparity was illustrated last week, as private banks such as Hijira Bank and Lion International Bank (LIB) pushed buying rates sharply upward. On March 10, Hijira Bank posted a peak buying rate of 130.007 Br against the dollar, with Lion Bank edging slightly higher to 130.071 Br two days later.
By comparison, CBE held its buying rate considerably lower, at 124.009 Br, demonstrating its caution amid a volatile market.
Selling rates mirrored this divergence. Hijira Bank reached a peak selling rate of 132.607 Br, narrowly trailing Lion Bank’s 132.672 Br. The CBE, yet again, posted notably lower selling rates, settling around 126.489 Br. The strategy signals CBE’s continued alignment with policymakers seeking to curb rapid depreciation, even at the cost of market competitiveness.
The widening gap between state and private banks' rates reveals deeper complexities within the currency market. Banks are carefully tiptoeing a precarious balance, offering high bids at auctions to secure scarce dollars, yet setting lower retail counter rates to address risks. Market observers note this disparity uncovered the contradictions inherent in the current market dynamics where aggressive bidding is used to maintain liquidity and conservative retail pricing to control risk exposure.
Hijira Bank, in particular, has drawn attention lately due to its forex managers' aggressive postings, sometimes surpassing 130 Br to a dollar, clearly signaling their strategy to secure scarce hard currency for clients at all costs. Their assertive approach contrasted sharply with the cautious behaviour maintained by the CBE, which appears influenced by policy objectives intended to limit excessive currency volatility.
Yet, analysts have raised concerns that the state bank’s resistance to align rates with market trends could exacerbate uncertainties rather than ensure stability.
The disparity was also illustrated by unusual fluctuations in the National Bank of Ethiopia’s (NBE) rate spreads. Typically, banks adhere closely to a policy-imposed two percent margin between buying and selling rates. However, on March 10, NBE’s spread dipped to 1.71pc, and by March 13, it dramatically narrowed to an atypically low 0.37pc, unusual volatility reflecting market uncertainty.
Major private banks, such as Dashen, Abyssinia, Awash, Zemen, and Wegagen, have adopted moderate rate adjustments, incrementally pushing their buying rates towards the 128 Br mark. Their cautious yet incremental approach unveiled that these banks are positioning themselves prudently, avoiding outright competition with the most aggressive contenders, but still signalling expectations of further currency weakening.
Forex volatility continues despite liberalisation measures implemented by authorities in early August last year. These reforms were designed to stabilise the Brewed Buck and reduce the reliance on parallel markets. Yet, the informal market still trades at premiums of 25pc compared to official rates, attracting individuals and businesses seeking more flexible and competitive pricing than formal banking channels.
Analysts forecast continued depreciation pressures over the coming months unless monetary authorities intervene to address the underlying imbalances between currency supply and persistent demand for imports. According to market observers, by end of April, the most aggressive banks could see buying rates approaching 132 Br and selling rates climbing as high as 135 Br. However, the CBE is expected to maintain its conservative posture, particularly if it continues to dominate forex auctions.
Businesses and consumers are caught in the turmoil, facing rising import costs and mounting uncertainty. The banking industry's inability to see reasonably matching commission rates on forex sells complicates market forecasting and strategic planning for companies dependent on foreign currency. Analysts warn that uncertainty will likely continue, prolonging volatility without decisive Central Bank action to address structural imbalances, leaving the Brewed Buck’s fate precariously balanced between policy priorities and market realities.
PUBLISHED ON
Mar 16, 2025 [ VOL
25 , NO
1298]
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