Ethiopia’s interbank money market traded 191.3 billion birr in August, but the number that matters is 13.000, the rate banks accepted for two straight weeks before a $500 million central bank dollar sale changed the price of cash.
For the first two weeks of August, the weighted average rate in Ethiopia’s local currency interbank money market did not move at all. Overnight money cleared at 13.000 percent. Seven-day money cleared at 13.000 percent. The change column on the Ethiopian Securities Exchange’s weekly statistics read 0.0000 percent, twice, across both tenors.
That flat line was not a sign of a quiet market. It was a sign of a market with nowhere lower to go.
Since the National Bank of Ethiopia raised the National Bank Rate to 16 percent on 13 July, the interest rate corridor has run from 13 percent to 19 percent, the policy rate plus or minus three percentage points, with the floor set by the NBE’s standing deposit facility. A bank sitting on surplus birr can always park it at the central bank at that floor rate. It will not lend to a peer for less.
Interbank money trading at exactly 13.000 percent, to three decimal places, week after week, therefore says something specific: the banking system as a whole had more birr than it needed, and the price of cash had settled at the only level the corridor would allow.
Then it broke.
The break: 312 basis points in one week
In the week of 17–21 August, the overnight weighted average rate jumped to 16.119 percent, a move of 311.9 basis points that pushed it above the National Bank Rate itself. Seven-day money rose 218.6 basis points to 15.186 percent. Turnover more than doubled from the previous week, to 57.7 billion birr from 28.05 billion, and the number of trades rose from 35 to 59.
Two features of that week deserve attention.
The first is the direction of the move relative to volume. Rates rising while turnover doubles is not a repricing of a thin market. It is a market where banks were actively bidding for cash and getting filled at progressively worse levels.
The second is the shape of the curve. Overnight money at 16.119 percent traded above seven-day money at 15.186 percent, an inversion. In a functioning term market, the longer tenor normally carries the premium. When the shortest tenor commands the highest price, the constraint is immediate rather than structural: banks needed birr that day, not that fortnight.
Where the birr went
The timing points to the foreign exchange window.
Across three auctions in August, the NBE sold dollars to commercial banks in exchange for birr, withdrawing that birr from the banking system. Auction No. 25 on 12 August allocated $125 million at a marginal rate of 161.0050 birr, absorbing roughly 20.1 billion birr.
On 20 August, in a session announced only a day earlier and described by the central bank as being conducted for monetary policy purposes, the NBE sold $500 million at a weighted average of 160.2144 birr, roughly 80.1 billion birr drained in a single sitting. Auction No. 27 on 26 August took out a further 20 billion birr or so.
The total across the month is on the order of 120 billion birr withdrawn from the banking system through the FX window.
The scale is worth holding against the interbank numbers. The 20 August operation alone removed more birr than the interbank market traded in any full week of the month. And it landed squarely in the week the rate broke.
The central bank’s own framing supports the reading. A special auction conducted “for monetary policy purposes” is a liquidity-draining operation as much as a currency intervention. On the evidence of the ESX statistics, it worked: two weeks of floor-pinned trading ended within days.
Week four: partial retreat, uneven shape
The final week of August, 24–28, brought a partial normalisation, but an asymmetric one.
Seven-day money fell 194.5 basis points to 13.241 percent, effectively back at the corridor floor, just 24 basis points above the deposit facility rate. Overnight money fell 154.5 basis points to 14.574 percent, but remained 157 basis points above the floor. The curve stayed inverted.
The volume data tells a sharper story. Overnight turnover hit 19.7 billion birr, the highest of the month and more than five times the 3.85 billion recorded two weeks earlier, on an unchanged count of 12 trades. Average overnight ticket size rose to roughly 1.64 billion birr, against 642 million birr in the week of 10–14 August.
Fewer, larger tickets at elevated rates while term money returns to the floor is the signature of a distribution problem rather than an aggregate shortage: the system’s surplus had returned, but it was not sitting with the banks that needed it. That is consistent with the NBE’s longstanding observation that liquidity pressure in Ethiopia’s banking sector is concentrated in lenders with high loan-to-deposit ratios, and with the targeted, ratio-based reserve requirement the central bank introduced in July.
One further data point invites the same interpretation. Bank participation in the FX auctions collapsed over the month, from 28 bidders on 12 August to 22 on 20 August to just five on 26 August, with only two successful. Banks that had committed large birr balances at the special auction six days earlier may simply have had less birr to bid with. That connection is circumstantial, but the sequencing is hard to ignore.
Equity market
The ESX equity board traded 153,198,254 birr across 1,825 trades and 103,752 shares over the four weeks of August. The number of listed securities stood at six in every week of the month.
| Week | Volume | Trades | Value (ETB) |
|---|---|---|---|
| 3–7 Aug | 21,218 | 469 | 32,267,527 |
| 10–14 Aug | 25,258 | 470 | 46,045,610 |
| 17–21 Aug | 35,697 | 518 | 50,718,857 |
| 24–28 Aug | 21,579 | 368 | 24,166,260 |
| Total | 103,752 | 1,825 | 153,198,254 |
The week of 17–21 August was the busiest of the month on all three measures, recording 35,697 shares, 518 trades and 50,718,857 birr in value. The week of 24–28 August was the lightest, at 21,579 shares, 368 trades and 24,166,260 birr.
Weekly value traded rose in each of the first three weeks, from 32.27 million birr to 46.05 million birr to 50.72 million birr, before falling to 24.17 million birr in the closing week. Trade counts were close to flat across the first two weeks, at 469 and 470, rose to 518 in the third, and fell to 368 in the fourth.
Average value per trade for the month was 83,944 birr, ranging from 65,669 birr in the week of 24–28 August to 97,969 birr in the week of 10–14 August.
The ESX weekly statistics report aggregate figures for the board as a whole. They do not carry a market index or a per-security breakdown, so movements in the weekly totals cannot be assigned to any individual listed security.
What to watch
Two things.
The NBE has two more scheduled auctions this quarter, on 9 September and 23 September, each at $125 million. If the interbank rate returns to and holds at 13.000 percent through both, August’s move was a liquidity event with a clear cause and a short half-life. If the floor does not reassert, the excess liquidity that defined the first half of August has been structurally drained.
The overnight–seven-day spread is the cleaner signal than either rate on its own. A return to a flat or upward-sloping curve means the distribution problem has resolved. Persistent inversion means it has not.
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