Ethiopia's latest foreign-exchange auction cleared at a lower exchange rate and attracted significantly fewer participants than a major dollar sale conducted just four weeks earlier, signaling easing demand pressures and growing caution among banks ahead of the fiscal year-end.
The National Bank of Ethiopia (NBE) allotted $100 million in its 23rd foreign-exchange auction on Tuesday, with successful bids clearing at 158 birr per dollar, according to results released by the central bank. The weighted average rate also settled at 158 birr, below the 159.99 birr average recorded during the NBE's special $500 million auction on May 19.
Demand remained strong but moderated considerably. Banks submitted bids totaling $236.3 million, compared with $1.06 billion during the May auction. Participation fell to 16 banks from 30, while the number of successful bidders dropped to eight from 14.
Perhaps more striking was the near-complete convergence of bid prices. The highest successful bid in Tuesday's auction was 158.00 birr per dollar, while the lowest was 157.99 birr, indicating an exceptionally narrow spread and suggesting that banks shared almost identical expectations regarding the market-clearing rate.
The results contrast with the May special auction, where bids ranged from 157.30 birr to 160.91 birr, reflecting substantially greater uncertainty about the market value of foreign exchange. Market participants say several factors may be contributing to the softer demand profile.
The NBE's large-scale intervention in May likely satisfied a significant portion of accumulated foreign-currency demand, reducing the urgency for banks to compete aggressively in subsequent auctions. The central bank has been conducting regular biweekly auctions as part of broader reforms aimed at improving transparency and liquidity in Ethiopia's foreign-exchange market.
Another factor may be the approach of Ethiopia's fiscal year-end on June 30th. With only weeks remaining before annual financial statements are finalized, banks are often more cautious about deploying birr liquidity and may prefer to maintain stronger balance-sheet positions rather than commit aggressively to foreign-currency purchases.
That dynamic could help explain why participation nearly halved despite the auction clearing at a lower rate than the previous sale.
The decline in the clearing rate also suggests that immediate pressure on the birr may be easing. The marginal rate fell to 157.9999 birr per dollar from 159.6299 birr in May, indicating that banks were willing to accept dollars at lower exchange-rate levels than they were several weeks ago.
While demand still exceeded available supply by more than two times, the latest auction points to a market that is becoming increasingly orderly. The sharp narrowing of bid spreads, lower clearing rates, and reduced participation collectively suggest that foreign-exchange conditions may be stabilizing after months of adjustment following Ethiopia's exchange-rate reforms.
Attention will now turn to the next scheduled auction to determine whether the softer demand observed in June reflects a temporary fiscal year-end effect or the beginning of a broader normalization in the country's foreign-exchange market.