Policy Signals, Not Competition, Steer Forex Price Discovery

Aug 17 , 2025.

The Birr’s (Brewed Buck) market against the Dollar (Green Buck) advanced in neat formation over six trading sessions last week. Private lenders marched almost shoulder to shoulder, policymakers fixed the guardrails, and the state-owned Commercial Bank of Ethiopia (CBE), riding the forex train, kept its engine idling. The convoy metaphor matters because the week’s story was not the distance travelled (under one Birr) but the calm and disciplined road taken.

Across the week, the cross-bank average bid inched to 138.32 Br from 137.24 Br, while the average ask rose to 140.99 Br from 139.88 Br. That 0.79pc depreciation on both sides arrived without the zigzags that often mark weaker-currency stretches. Weekly averages landed at 137.91 Br to buy and 140.58 Br to sell, revealing a metronomic drift rather than a scramble.

Oromia Bank set the pace, consistently posting (for months now) the highest buying quote each day and clocking fresh peaks of 141.46 Br on August 15 and 16. On the sell side, it touched 144.29 Br, also the week’s top. At the other extreme, CBE did not budge from 134.44 Br bid, which remains for four weeks) and 137.13 Br ask, the market’s cheapest ticket.

Between those poles, the National Bank of Ethiopia (NBE) played referee. On five of six days, the Central Bank listed identical buy and sell prices, a zero spread that signals policy intent rather than commerce. On August 15, it posted a bid of 141.11 Br, matching Oromia’s breach of the 140-Birr ceiling.

Bar the three outliers (CBE, NBE, and premium-pricing Oromia Bank), the private-bank core appeared to be working off the same sheet. Their median bid crept from 137.37 Br to 138.6 Br, a 0.94pc advance in six days. The interquartile band on those bids began above 0.7 Br, widened past one Birr midweek and narrowed back to 0.71 Br by Friday. Daily averages traced the same orderly slope. The curve stayed smooth, with no player surging ahead, none falling behind.

Outliers nonetheless defined the forex market. CBE’s frozen quote delivered state-mandated stability yet drifted ever farther below the market. By week’s end, its bid sat more than three percent under the private-bank median, up from 2.1pc at the start. The unmoving floor and a mobile ceiling create a two-tier structure, with a quasi-official anchor that scarcely shifts and a competitive layer that walks the slope.

At the roof, Oromia Bank’s premium hovered near two percentage points all week at 2.98 Br on August 11, easing to roughly 2.8 Br four days later. Because the Central Bank’s reference showed no spread, Oromia Bank’s quotes effectively drew the upper boundary. Once both banks printed bids above 141 Br, the psychological barrier of “140” was not only pierced but also normalised.

Two minor deviations reminded traders who set the tone. Ahadu Bank widened its spread to 2.01pc on August 15 and 16, a slight increase in cash terms, yet a noticeable deviation from the standard two-point margin. And on August 12, the Central Bank allowed itself a 0.49pc spread before snapping back to zero the next day. Neither wrinkle altered direction.

Most private lenders raised both sides of their quotes by one to one-and-a-half Birr as the week unfolded, with laggards such as Hijra, Enat, and ZamZam playing a late catch-up. The group’s synchrony, with tight ranges, rising medians, and near-identical spreads, revealed they were following a template rather than taking fresh risk. In that environment, Oromia Bank’s posture looks less like a speculative bet and more like a deliberate choice to occupy the top of the permitted band.

Market watchers say the standard two-percent gap between buy and sell prices serves as an unwritten rule and is held for nearly every lender, while Ahadu Bank’s brief deviation ended the next day. Private banks waited for the NBE to lift its reference and then followed. The routine shows policy signals, not competition, still steer price discovery and let the Birr weaken without panic.

Authorities appear to favour a controlled slide. Keeping CBE fixed while the private tier drifts accomplishes that. From Monday to Saturday, most private quotes gained over one Birr, yet none crossed the roof sketched by Oromia Bank and endorsed by the Central Bank's actions. The pattern will likely persist until policy changes, either the NBE raises its zero-spread quote sharply or the CBE leaves its post.

Absent such a shift, traders expect the convoy to keep moving at the same measured pace.

PUBLISHED ON Aug 17,2025 [ VOL 26 , NO 1320]