The National Bank of Ethiopia’s (NBE) latest foreign exchange auction fell short of full absorption for a second consecutive round, though demand firmed, participation widened to all 27 commercial banks, and the birr edged stronger.

At Foreign Exchange Auction No. 29, held Wednesday, the central bank offered USD 125 million. Banks submitted bids totalling USD 123.49 million, leaving the auction undersubscribed by USD 1.51 million, about 1.2% of the offer. All 27 participating banks were successful.

The weighted average rate of successful bids came in at 160.2297 birr per dollar, while the marginal (cut-off) rate settled at 158.0715 birr, which was also the lowest bid. The highest bid reached 160.8869 birr. At the weighted average rate, the dollars allocated are worth roughly 19.79 billion birr.

Birr firms slightly; shortfall shrinks

The results mark a modest improvement on the previous round. At Auction No. 28 on September 9, bids totalled USD 120 million against USD 125 million on offer, with all 20 participating banks successful. A review of published results showed that auction was the first regular round explicitly reported as undersubscribed.

Compared with that auction, total bids rose by USD 3.49 million (about 2.9%), and the unfilled amount fell from USD 5 million to USD 1.51 million. The weighted average rate eased from 160.5357 birr/USD to 160.2297, a birr appreciation of about 0.19%. The cut-off rate fell from 158.3500 to 158.0715, a 0.18% gain.

The bid range widened, however. The spread between the highest and lowest bids stretched to 2.82 birr from about 2.41 birr in the previous round, when bids ranged from 158.35 to 160.7556 birr/USD. This suggests a few banks were willing to pay more even as most bid near the floor.

More banks, smaller tickets

Participation jumped from 20 to 27 banks, but the average bid per bank fell to about USD 4.57 million. In Auction No. 28 the average was six million dollars.

The pattern of broader but thinner demand continues a trend seen since late summer. Total demand at Auction No. 28 was about 74.5% below the August 12 auction, which recorded a 161.7994 birr weighted average and was heavily oversubscribed. Wednesday’s rate is about 0.97% below that August peak.

Analysts have cautioned against reading the shortfalls as a collapse in hard currency demand. After the previous round, financial sector analysts and macroeconomists interviewed by Capital attributed the undersubscription to temporary birr liquidity constraints in the banking system rather than a structural fall in demand for foreign exchange.

The smaller shortfall this week, alongside full participation, is consistent with that view. However, one more auction will be needed to tell whether liquidity is recovering or demand has settled at a lower level.