NBE’s Auction Wraps Up: Why Banks Are Rushing to Secure USD?

The National Bank of Ethiopia’s (NBE) latest foreign currency auction has sparked confusion among industry stakeholders after concluding at a significantly higher rate than the prevailing market price. While the USD exchange rate stood at ETB 124.0086 on the market, the auction saw USD60 million sold at an average rate of ETB 135.62 per dollar. This unexpected outcome has raised concerns about its impact on the broader market.

A financial expert close to the banking sector explained that for banks, participating in the auction is often their only option to secure the foreign currency needed to cover essential expenses. He noted that NBE holds these auctions to manage forex distribution and stabilize market fluctuations.

In a recent policy shift, NBE has transferred a significant portion of fuel import-related forex responsibilities to commercial banks. Fuel imports require large sums of foreign currency, which could strain reserves. “With payment deadlines for fuel imports approaching, banks likely raised their bids to ensure they could meet their obligations,” the expert said.

Smaller banks also participated aggressively, bidding at higher rates. “They prefer the auction as it offers a better deal compared to purchasing from larger banks, which often charge high commissions,” he added.

A seasoned economist highlighted the uncertainty surrounding future auctions, which has led banks to maximize their forex purchases whenever possible. While acknowledging the auction system’s benefits, he cautioned that the latest auction’s near ETB 136 per USD rate could exert inflationary pressure on the economy. “Exporters may withhold their goods, anticipating further depreciation of the ETB and higher profits in future auctions,” he warned.

According to NBE, 27 banks participated in the auction. Sources indicate that only 12 banks secured foreign currency, with winning bids ranging from a minimum of ETB 130 to a maximum of ETB 141 per dollar. Notably, a single bank reportedly obtained just USD200,000 at the highest rate of ETB 141 per dollar. 

Source: The Reporter