NBE’s $125 Million FX Auction Goes Undersubscribed as Bank Demand Falls

Ethiopia’s foreign exchange market recorded a notable shift on Wednesday as commercial banks sought less foreign currency than the National Bank of Ethiopia (NBE) offered, leaving $5 million of a planned $125 million auction unallocated.

At Foreign Exchange Auction No. 28 held on September 9, banks submitted a combined $120 million in bids, against the $125 million made available by the central bank. All 20 participating banks received allocations, according to the NBE’s results.

The outcome contrasts sharply with the heavy excess demand seen at the previous regular auctions, where banks competed for significantly more dollars than the central bank was offering.

The latest auction cleared at a weighted average rate of 160.5357 birr per US dollar, while the marginal, or cut-off, rate stood at 158.3500 birr. Successful bids ranged from 158.3500 to 160.7556 birr per dollar.

Demand turns from shortage to undersubscription

The most striking feature of the latest auction was not the exchange rate but the change in demand.

On August 26, banks submitted $170.51 million for the same $125 million allocation, leaving demand about $45.5 million above supply. Only two of five participating banks were successful at that auction.

The September 9 auction produced the opposite result: demand was $5 million below supply, and every participating bank received an allocation.

That means the amount of bids relative to the dollars available fell from about 1.36 times supply in August to 0.96 times in September.

The shift is even more pronounced when compared with the August 12 auction, when banks submitted about $470.17 million in bids for $125 million—nearly 3.8 times the amount offered.

The latest result therefore suggests that the immediate pressure from participating banks for auction-supplied foreign currency has eased considerably.

It does not, however, establish that Ethiopia’s broader foreign-exchange shortage has been resolved.

The birr remains around 160

While demand changed substantially, the auction rate remained relatively close to the 160-birr level seen in recent auctions.

The September 9 weighted average of 160.5357 birr per dollar was about 0.33 birr higher than the 160.2070 recorded on August 26, representing a movement of roughly 0.2 percent. The August 26 rate itself had been substantially below the 161.7994 birr weighted average recorded on August 12.

The latest result therefore shows a market in which the exchange rate has remained relatively stable around 160 birr at the auction, even as the intensity of bank demand has changed.

That distinction matters.

A weaker demand signal can mean that banks currently have fewer unmet foreign-currency requirements to bring to the auction, but it does not by itself show whether underlying demand from importers and businesses has fallen, shifted to other channels or is being met elsewhere.

More banks participated, but demand was lower

Participation also changed significantly.

Twenty banks took part in the latest auction, and all 20 were successful. That is a much broader participation base than the August 26 auction, when five banks submitted bids and only two secured allocations.

The combination is notable: more banks participated, yet total demand was lower than the amount supplied.

This could indicate that access to the auction is becoming broader even while individual banks are submitting smaller bids. But the auction data alone cannot establish why banks reduced their bids.

The NBE’s published result does not provide a breakdown of the underlying foreign-currency demand by bank or by customer category.

What the result does and does not say

The $5 million undersubscription should not be interpreted as evidence that Ethiopia has moved from a foreign-exchange shortage to a surplus.

The auction captures the bids submitted by participating banks at a particular point in time. It does not measure total unmet demand across the economy.

The latest result nevertheless provides an important signal for the foreign-exchange reform process.

Earlier auctions showed banks competing aggressively for limited central-bank supply, with the August 12 auction producing more than $470 million in bids against $125 million offered. By September 9, that excess demand had disappeared.

The NBE’s challenge now is to determine whether the change represents a temporary reduction in auction demand or a more durable improvement in foreign-currency availability and market functioning.

For the moment, the clearest message from Auction No. 28 is simple: the dollars offered by the central bank exceeded the bids made by participating banks for the first time in this recent sequence of $125 million regular auctions.

The next scheduled auction on September 23 will provide another test of whether that change in demand persists.