Ethiopia’s latest USD 500 million foreign exchange auction saw demand ease after weeks of heavy oversubscription, with banks taking up about USD 455 million and leaving roughly USD 45 million unallocated, according to National Bank of Ethiopia data.
- •The outcome followed a run of auctions in January and early February where bids repeatedly exceeded supply, including USD 592 million bid for a USD 500 million special sale and demand rising above USD 145 million for USD 70 million on offer.
- •Recent FX reforms provide important context with measures introduced since mid-2024 widening access to FX accounts, international card payments, service export retention, and advance payments for education and healthcare.
- •These changes have eased how FX is used, particularly for smaller and more frequent transactions, but they have not expanded reserves or loosened prudential caps.
The latest undersubscription points to balance-sheet constraints beginning to bind.
Under the Foreign Exchange Exposure Limits of Banks Directive No. SBB/96/2025, a bank’s overall net open foreign exchange position must remain within +/- 18% of Tier 1 capital at the close of each business day. Any excess must be corrected promptly and reported daily. After absorbing large volumes across successive auctions, banks appear to have reached limits that restrict further accumulation of FX without matching outflows.
Pricing dynamics reinforced caution and as auction rates move higher, the cost of holding FX rose alongside expectations of further birr weakness. With exposure limits preventing gradual absorption, banks had an incentive to ration bids while FX already in the pipeline awaited deployment through trade payments and service transactions.
