
Viewpoints | Jan 18,2025
The Brewed Buck’s relentless downward drift against a basket of major currencies showed little sign of slowing as the new year began last week.
The Birr's value against the Dollar was kept under 125, an exchange rate that appears to be propped up by invisible policy levers. Forex managers at several banks, including Dashen, Abyssinia, Awash, and Wegagen, have quietly settled into this new normal, keeping their offers below this threshold. In doing so, they distanced themselves from more bullish peers who continued to push the currency deeper into depreciation.
Underlying this divergence is a monetary environment strained by tightening policies and heightened foreign-currency demand. Over the last week, the Brewed Buck’s sustained slip against the Green Buck has laid bare its growing fragility.
Several banks have displayed disparities in their exchange-rate postings, uncovering the fractured forex market facing foreign-currency traders. For the third consecutive week, Tsehay Bank set its buying rate for the dollar above 125 Br, hitting 125.96 Br on January 11. It also had the highest selling rate in the market, 128.48 Br. This aggressive move, likely driven by a determination to stockpile foreign currency, illustrated the Bank’s willingness to offer a premium in a market where forex supply remains constrained.
The National Bank of Ethiopia (NBE), typically more guarded in its daily rate adjustments, mirrored this shift toward higher rates. By the end of last week, it had nudged its own buying rate to 125.35 Br, with a selling rate of 126.62 Br. This change, albeit measured, could signal a reluctant acceptance of the Birr’s ongoing decline. It also stoked concern that inflationary pressure may mount, adding fresh challenges to policymakers already balancing multiple policy objectives.
The state-owned Commercial Bank of Ethiopia (CBE) remains a stabilising force, consistently posting the lowest buying and selling rates, with the former at around 124 Br and the latter at 126.48 Br. The deliberate strategy could inform CBE’s policy-driven mandate of smoothing volatility and damping speculative swings.
Over the six-day stretch that began on January 6, 2025, the average buying rate across all banks was 124.81 Br, while the average selling rate clocked in at 127.26 Br, maintaining a roughly two percent spread. Yet notable outliers persisted.
Tsehay Bank’s rates outpaced the entire market, while CBE’s offerings anchored the lower end of the spectrum. In between were institutions like Amhara and Awash banks, which appeared to acknowledge the market’s downward momentum by holding below the 125 Br mark. Their positions hinted at a collective resignation to the Birr’s depreciation, even if banks are not uniform in how aggressively they respond.
The uneven playing field could reveal a deeper tug-of-war between private and state-owned banks, as well as between market forces and regulatory ambitions. Tsehay Bank’s forays above the 125 Br threshold signal that dollars are in scarce supply, with some players willing to pay a noticeable premium to ensure access to foreign exchange. On the regulatory side, the Central Bank’s uptick in its weighted average rate appears to align it more closely with unfolding market conditions, though the pace of that adjustment remains cautious. By contrast, CBE’s conservative position serves as a counterweight, illustrating an institutional reluctance to embrace the Birr’s tumble fully.
The fallout for the broader economy could be considerable. As the Birr weakens, imports become more expensive, compounding inflation in an economy that relies heavily on foreign goods and raw materials. Food prices, industrial inputs, and consumer products all stand to register price increases if the depreciation endures. In this tense setting, banks’ divergent strategies — Tsehay’s aggressiveness, CBE’s caution, and the quiet accommodation by others — reveal a market seeking equilibrium, yet beset by mismatched incentives and the pressing need for hard currency.
PUBLISHED ON
Jan 12,2025 [ VOL
25 , NO
1289]
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