The National Bank of Ethiopia (NBE) has emphasized the need for close monitoring of the foreign exchange market, as experts accuse banks of engaging in speculative foreign currency purchases, exacerbating the disparity between buying and selling rates.

In its latest statement, the NBE’s Monetary Policy Committee (MPC) noted that managing recent foreign exchange inflows requires careful attention and a measured approach to avoid unintended monetary policy easing resulting from associated liquidity injections.

“Given these factors, the Committee concluded that maintaining the current cautious monetary policy stance is necessary,” the statement added.

Experts, including former and current bank presidents, observed that the recent NBE auction indicated that banks are offering additional funds to secure foreign currency for various purposes.

They pointed out that the central bank may struggle to prevent financial institutions from manipulating their offers.

A bank president, speaking on condition of anonymity, remarked that the banking industry is not operating as expected. Instead, it appears to focus on short-term profit trends, akin to trading businesses that prioritize daily profitability.

“I understand that banks are profit-driven institutions, but their operations rely on the resources of others. That’s why they should conduct their business responsibly, benefiting the economy and the country as a whole,” he added.

Former and current bank presidents noted that banks should prioritize capital creation and long-term vision. “However, we now observe that some banks are shortsighted, prioritizing profitability above all else,” one remarked.

A banking expert told Capital: “It’s perplexing why banks offered bidding rates that diverge from the market.”

A former head of International Banking Division at one of the major banks expressed surprise: “After the NBE auction, I expected banks to adjust their selling rates the following day, but that didn’t happen.”

He added that this suggests banks may be selling foreign currency through concealed schemes.

Another bank president interviewed by Capital shared his concerns: “They impose unreasonable service charges when selling foreign currency. While some banks charge 4%, others have fees as high as 12%.”

He emphasized that banks, as financial institutions, should uphold ethical standards—not just for regulatory compliance but also for the public good. “I’m truly perplexed about what’s happening in the market,” he admitted.

Experts have commented on the implications of the latest MPC evaluation, which stated that foreign exchange inflows require close attention and a cautious approach.

Some interpreted this to mean that the influx of foreign currency into the economy needs careful monitoring due to concerns that exchange rate pressures could lead to inflation.

“Speculative short-term investments by banks could further destabilize the financial system,” warned one sector expert.

Financial experts also emphasized the need for transparency in service charges. “While the regulatory body may not set prices, banks should publicly disclose their service charge rates under consumer protection laws,” they argued.

A president of a leading bank in foreign currency generation told Capital, “I’m uncertain whether the NBE will take legal action, but it may exert tactical pressure on those manipulating exchange rates. Greater transparency is essential—the market currently lacks clarity.”

Some experts suggested that the NBE should establish a maximum limit on foreign currency purchases per bank.

However, one bank president countered, “Imposing such limits might be challenging for the NBE due to its free-market guidelines. Nonetheless, I agree that rates should remain stable, unlike the recent volatility observed in the auctions.”

He questioned, “How can a bank buy a dollar for 142 birr and sell it for 129 birr? There must be hidden mechanisms at play.”

Other experts speculated that banks offering high rates might be engaging in speculation or investing abroad.

An IBD expert stated, “Banks bidding aggressively may be fulfilling obligations like overseas LC payments. Others could be speculating on foreign time deposits or betting on future exchange rate increases.”

A banking analyst added, “With Ethiopia’s credit growth ceiling at 18%, some banks may convert resources into foreign currency for overseas investments, anticipating exchange rate gains.”

A businessman supporting bank speculation argued, “The NBE may struggle to regulate this, as speculation is inherent in business. The government is moving toward a liberal market economy, reducing intervention.”

Recently, the NBE announced plans to revise the policy rate introduced in July 2024 during the first quarter of 2025. However, the MPC, chaired by Governor Mamo Esmelealem Mihretu, decided to maintain the 15% rate, and the NBE board approved the proposal put forth by the MPC.

A key reason for a potential rate hike was to combat inflation, which stood at 15% in February.