Ethiopia’s Second Special Forex Auction Sees Rates Surge to ETB 135.62 per USD
The National Bank of Ethiopia (NBE) has successfully
conducted its second special foreign exchange auction, selling USD 60 million
at an average rate of ETB 135.62 per dollar. The auction saw participation from
27 commercial banks, highlighting the sustained demand for foreign currency as
Ethiopia advances its market-based exchange rate reforms.
Despite the auction’s success, a notable gap remains between
the auction rate and the official buying rate at commercial banks. The
Commercial Bank of Ethiopia (CBE) currently purchases USD at ETB 124.0086,
significantly below the auction's average rate. This discrepancy raises
critical concerns regarding how commercial banks will set their foreign
exchange selling rates and the accessibility of foreign currency for businesses
and individuals.
Economist Wasihun Belay, in a recent post, posed a pressing
question: “How much will commercial banks sell to foreign exchange seekers?”
With selling rates likely to exceed ETB 135.62, experts caution that forex
seekers may face higher costs, potentially driving more demand toward the
parallel market. If banks price foreign currency too high, the black market
could gain momentum, undermining official efforts to stabilize the exchange
rate.
The NBE’s move comes as Ethiopia leverages its growing
foreign exchange reserves, boosted by record-high gold exports. The country
reported USD 1.2 billion in gold exports last year, contributing to increased
forex availability. However, while bolstering reserves, the surge in foreign
currency inflows also poses risks of inflation, prompting the NBE to intervene
strategically to manage liquidity.
This auction follows the central bank’s August 2024 auction,
where the average exchange rate stood at ETB 107.9 per dollar. The significant
rate jump underscores the continued strong demand for foreign currency in
Ethiopia’s evolving monetary landscape.
Looking ahead, the NBE has reiterated its commitment to
conducting additional auctions as necessary to stabilize the market and ensure
a more balanced exchange rate mechanism. The coming weeks will be critical in
determining how commercial banks adjust their rates and how the market responds
to Ethiopia’s ongoing foreign exchange policy shifts.
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