Ethiopia’s central bank will hold a special dollar auction tomorrow aiming to arrest a nosedive in the value of its currency after it plunged around 70 percent in the wake of foreign exchange liberalization last week.
The National Bank of Ethiopia (NBE) said on Wednesday it will urgently conduct the special dollar sale on August 7, just eight days after it allowed the birr to freely float after decades of rigid capital controls.
The birr has lost approximately 70 percent of its value against the dollar since the flotation was announced on July 29, with exchange rates varying widely in the fragmented market.
The plunge has raised alarm over rising import costs and inflation, adding pressure to an economy already reeling from war and drought.
Tomorrow's auction is a critical test as authorities rush to increase scarce dollar liquidity and stabilize the birr, which is in freefall.
NBE will hold the competitive bidding process between 10 a.m. and 12 p.m. local time, according to an emailed statement. Interested commercial banks will submit offers for U.S. dollars that include the volumes requested and the price they are willing to pay in birr.
Successful bidders will pay the rate they proposed and no single lender can receive more than 20 percent of the total funds available, said the central bank. Settlement is due on the same day and the weighted-average price will be announced by 3 p.m.