Ethiopia's National Bank (NBE) held a special foreign exchange auction on Monday, concluding with a weighted average rate of 107.9 birr per U.S. dollar.
The auction, which involved 27 participating banks, marks a significant step towards exchange rate stability and the narrowing of the gap between the official bank rate and the parallel black market rate, according to NBE Governor Mamo Mihretu.
"We are pleased to see a substantial narrowing of the gap between bank exchange rates and parallel market rates over the past week, as well as meaningful progress towards exchange rate stability," Mamo said in a statement.
The auction results will be reflected in the central bank's indicative daily exchange rate to be posted on Tuesday.
Mamo noted that the reforms implemented by the government have achieved their intended goal of shifting more foreign exchange transaction activity to the formal banking system. This is expected to benefit both exporters bringing in hard currency as well as companies and entrepreneurs in need of foreign exchange, according to the governor.
The governor also highlighted the growing trend of banks making more foreign exchange available to customers by approving past import requests and accepting new ones. He anticipates this trend will continue in the coming weeks with increasingly larger FX volumes.
The developments come as Ethiopia's black market forex traders have been reeling from wild swings in the birr exchange rate, which have compounded the cash crunch they were already facing due to a government-imposed credit cap.
The central bank's efforts to stabilize the currency and narrow the parallel market gap are seen as crucial steps in addressing the forex-starved official market's operational challenges.