The National Bank of Ethiopia (NBE) has expressed concerns regarding the misuse of a foreign exchange (forex) auction held a month ago by commercial banks. The NBE accused certain banks of acquiring forex only to resell it at inflated rates in the interbank market.
This strong criticism was directed at bank executives during an extraordinary meeting on Monday, March 31. Officials specifically targeted institutions involved in the February 25 forex auction—the second auction since the onset of Ethiopia’s macroeconomic reforms last July.
Sources within the banking sector informed Capital that the central bank rebuked certain banks for their speculative activities. The NBE alleged that some banks participated in the auction not to fulfill genuine foreign currency needs but to capitalize on reselling the forex in the interbank market.
Typically, banks are expected to purchase forex from the interbank market solely to meet customer demands or their own payment obligations.
However, the NBE contended that some banks were engaging in speculative practices, buying forex at auction only to sell it later at a higher rate.
Banking experts caution that such behavior distorts the market, likening it to commodity trading rather than responsible financial intermediation.
They highlighted that the outlier rate, significantly above the weighted average of 135.62 birr, suggests market manipulation rather than authentic demand.
One senior bank president supported the NBE’s position, stressing that banks should act responsibly instead of exploiting the system for short-term profits. “If this were due to a severe dollar shortage, the bidder would have sought a larger allocation,” noted a banking executive.
During the February auction, one bank reportedly bid as high as 142 birr per dollar to acquire 2 million out of the USD 60 million offered, a move experts argue does not reflect true market demand.
“If such a high rate were driven by severe forex shortages, we could understand, but the bank offering this rate sought only a small portion of the total auction amount,” remarked a bank president.
The central bank also criticized banks for imposing excessive service charges on forex sales, with some banks demanding fees as high as 11-12%.
“No other country imposes such steep charges. Banks should reduce rates, especially for larger forex purchases,” commented one executive.
Following the March 31 meeting, the April 1 forex auction experienced a more stable outcome, with a weighted average rate of 131.71 birr per dollar, reflecting a 3% drop from the previous auction.
The NBE also announced that auctions will now take place biweekly at least until the end of the fiscal year (June 30), a move bankers believe will help curb speculation.
“The central bank’s decision to regularize auctions has helped stabilize expectations,” said one banker to Capital.
The NBE’s stricter oversight underscores its commitment to ensuring that forex auctions serve their intended purpose of supporting genuine demand rather than facilitating speculative trading, according to financial industry experts.
The NBE reported that 12 commercial banks successfully bid for portions of the USD 50 million foreign exchange allocated in the April 1 auction.
After the meeting on Monday, the NBE issued a statement indicating that since the launch of the comprehensive macroeconomic reform program in July 2024, Ethiopia’s balance of payments position has shown steady and significant improvement, driven by rising exports, remittances, and capital inflows.
“In recent months, particularly, the delivery of record-high gold supplies to the NBE (the sole authorized gold exporter in the country) has boosted the central bank’s gold stocks and increased the level of foreign exchange reserves beyond the NBE’s initial expectations,” the statement added.
Ethiopia’s foreign currency reserves have surged by 200% since last year, surpassing the fiscal year’s target, Central Bank Governor Mamo Esmelealem Mihretu announced in a video statement.
