Ethiopia’s Forex Gap Widens as Birr Slides 3% in Seven Weeks
The National Bank of Ethiopia raised the dollar supply at its latest foreign exchange auction by 25 percent. Demand for that supply grew by roughly 193 percent. The birr absorbed the difference, sliding from a weighted average of 157 to nearly 162 per dollar, a depreciation of about 3 percent in the seven weeks between the two auction rounds.
The numbers, on their face, describe a market moving further out of balance rather than closer to it. At the August 12 sale, the NBE’s 25th foreign exchange auction, the central bank offered $125 million, up from $100 million at the previous round on June 24. Banks responded with $470.17 million in bids, nearly triple June’s $160.5 million. The bid-to-allocation ratio widened from roughly 1.6 times in June to 3.8 times in August, meaning banks collectively sought almost four dollars for every one the NBE made available.
That is the gap that matters: a modest, incremental expansion in supply set against demand that is compounding far faster. It shows up directly in price. The cut-off rate climbed to 161.0050 birr per dollar, and the weighted average settled near 161.80 to 162 birr, up from a flat 157 birr cut-off and weighted average in June. Bids this round ranged from 159.98 to as high as 163.99 birr, a spread that itself signals banks bidding more aggressively to secure an allocation.
Part of what is feeding the gap is broader participation. Twenty-eight banks entered bids in August, double the fourteen that showed up in June, evidence that more of the sector is turning to the official auction window rather than relying on it as a marginal source of dollars. Whether that translated into wider access is less clear: nine banks received allocations in June out of fourteen bidders, a strike rate above 60 percent, and the NBE’s own commentary on the August round describes the number of successful participants as unchanged. Banks Ethiopia has not seen an official NBE breakdown confirming the exact successful-bidder count for the 25th auction, so that reading should be treated as directional rather than confirmed. If it holds, a larger pool of banks is now competing for a similarly sized slice of allocations, which would help explain why the rate moved as much as it did.
The pattern sits uneasily against the reform programme’s stated aim of demonstrating market-based price discovery without destabilizing the exchange rate. A 3 percent move in birr terms over two auction cycles is not, by itself, alarming in a market still finding its footing two years after the July 2024 float. But it is a data point running in one direction, and it comes as the NBE has committed to three more auctions this quarter, on August 26, September 9 and September 23, each set at $125 million as part of a $500 million first-quarter programme.
If demand keeps outpacing the incremental increases in supply, the central bank faces a choice it has so far avoided making explicitly: raise auction sizes faster to close the gap, or accept further birr depreciation as the price of holding allocation growth steady. The next auction, on August 26, will be an early signal of which way that tradeoff is leaning.