CBE Holds Firm as Private Banks Race Ahead

May 4 , 2025.

The foreign exchange market edged lower again last week, deepening a slide that has become a fixture for importers and travellers. During the six trading days from April 28, 2025, banks posted buying prices for the dollar between 124.01Br and 133.61Br, while selling prices stretched to 136.28Br.

The spread between the cheapest and priciest quotes widened to more than nine Birr, the largest weekly range this year. This shows that balance sheet pressures now shape posted rates as much as official guidance, despite regulators’ efforts to keep dealers marching in step. Across the sector, the average buying price settled at roughly 130.74Br and the average selling price at 132.91Br.

That marks only a 0.27pc fall in the Birr over the week, yet the headline number hides growing gaps among commercial banks and hints that market forces are eclipsing policy nudges. No bank stands out more than the state-owned Commercial Bank of Ethiopia (CBE). It kept its screens frozen at 124.01Br for buying and 126.49Br for selling, more than five per cent stronger than the average. The policy intention could be anchoring prices and shielding importers from shocks, but market watchers see the bank top up a 12 Br bonus on every dollar it buys.

At the opposite extreme sits Oromia International Bank (OIB). On May 2 and 3, it posted as much as 133.61Br for buying and 136.28Br for selling, about 2.2pc dearer than the average. OIB was the market’s upside pacesetter, nudging competitors to follow.

A middle band of banks, led by Awash, Lion and Cooperative Bank of Oromia (Coop Bank), hugged the pack. Their buying quotes jumped between 131Br and 133Br, with selling quotes roughly two Birr higher. These banks were “price takers,” adjusting sheets only after a handful of larger players moved first. The cautious approach has kept their spreads near the informal two-percent rule. The Central Bank and Nib International Bank, at times, cut the gap to as little as 0.25pc and 0.45pc, respectively.

Taken together, last week’s trend divides the market into three classes of banks.

First are the “Anchors,” led by CBE, whose below market quotes dampen volatility but distort price discovery. Second come the “Aggressive Dealers,” headed by OIB and trailed by Amhara Bank, which price dollars above the average to meet urgent demand or speculate on further depreciation. Finally, there is the “Mainstream Cohort,” a cluster of roughly 20 banks that stick close to the mean and rarely deviate.

That stratification uncovers the tension between policy goals and balance sheet realities. Since the Central Bank loosened its daily guidance band last year, cash quotes have drifted toward the parallel market. Monetary policymakers have promised the IMF that they would narrow the spread between official and parallel market rates, but they still rely on state banks like CBE to hold the line when volatility flares.

The IMF wants a more completely floated exchangerate regime paired with tighter monetary policy. However, Ethiopia's import bill for fuel, fertiliser, and medicine is running above 17 billion dollars a year, although proceeds from exports, particularly coffee earnings, have gone up. A fragmented market makes it harder to steer expectations and can feed a vicious circle. Banks fearing future losses pay up for scarce dollars, the currency slips, and even cautious lenders are pulled along.

However, last week’s average decline of a quarter of a percent is mild by recent standards, and the twopercent spread rule still holds. But conditions could change fast if commodity prices jump or the Central Bank stops showing its firepower by holding bi-weekly forex auctions. The next signal will come when CBE edges toward the market or when OIB pushes even higher, revealing whether policy or price will set the tone in coming weeks.

PUBLISHED ON May 04,2025 [ VOL 26 , NO 1305]

Share this...

Facebook

Pinterest

Twitter

Linkedin