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The National Bank of Ethiopia (NBE) has announced that it will conduct the 12th round of its foreign exchange auction on Tuesday, December 7, 2018, in line with its biweekly auction schedule aimed at managing foreign currency liquidity and stabilizing the exchange rate.
According to the central bank, the total amount to be offered in this round of the auction will be 50 million US dollars, unchanged from the amount allocated during the previous auction. The decision to maintain the same auction volume signals the Bank’s continued cautious approach amid persistent foreign exchange shortages and rising pressure on the Ethiopian birr.
Context: Sharp Depreciation of the Birr
The announcement comes against the backdrop of a significant depreciation of the Ethiopian birr in recent months. During the 11th foreign exchange auction, held on November 23, 2018, the birr weakened sharply against the US dollar. According to reports by Capital Newspaper, the exchange rate reached 154 birr per US dollar, marking a depreciation of more than 11 percent within a two-month period.
This rapid decline has raised concerns among businesses, importers, and policymakers, particularly as Ethiopia continues to face structural foreign exchange constraints driven by high import demand, limited export earnings, external debt servicing obligations, and ongoing macroeconomic reforms.
Objectives of the Forex Auction System
The foreign exchange auction mechanism is part of NBE’s broader strategy to improve price discovery, reduce distortions between official and parallel market rates, and gradually move toward a more market-responsive exchange rate regime. Through these auctions, commercial banks are allowed to bid competitively for foreign currency, which is then allocated based on pricing and regulatory criteria.
While the auctions are intended to ease forex shortages, analysts note that the scale of demand continues to far exceed supply, limiting the immediate impact of the auctions on exchange rate stability. The unchanged auction amount of $50 million suggests that the central bank is balancing the need to inject liquidity with concerns about depleting foreign exchange reserves.
Market Expectations and Economic Implications
Market participants are closely watching the outcome of the 12th auction, particularly to assess whether the birr will experience further depreciation or stabilize in the short term. Import-dependent sectors—including fuel, pharmaceuticals, manufacturing inputs, and consumer goods—remain especially vulnerable to exchange rate volatility.
Economists warn that sustained depreciation could contribute to inflationary pressures, raise production costs, and increase the local currency burden of external debt. At the same time, a weaker birr may offer some competitiveness gains for exporters, although structural bottlenecks continue to limit Ethiopia’s export performance.
The upcoming auction is expected to provide further insight into the central bank’s evolving foreign exchange policy stance. With forex demand remaining strong and macroeconomic reforms underway, observers anticipate that NBE will continue using auctions as a key policy tool while gradually introducing complementary measures to address underlying imbalances in the economy.
The results of the 12th auction are expected to be closely analyzed by financial institutions, investors, and policymakers as Ethiopia navigates a delicate period of economic adjustment.
