Ethiopia's birr currency has weakened substantially in the official market since the new flexible foreign exchange regime took effect, depreciating around 30 percent against the U.S. dollar in just first day of trading. Â
The Commercial Bank of Ethiopia, the nation's largest lender, on Monday set its dollar/birr buying rate at 74.7, compared to 57.4 on Saturday when the liberalized system was launched.
It marks a sharp decline for the birr under the new floating exchange rate mechanism unveiled yesterday evening aimed at allowing market forces to determine the currency's value.
Previously, the National Bank of Ethiopia managed birr movements in a narrow band against the greenback and other major currencies.
Traders said the steep fall reflects underlying demand and supply pressures in the economy that have built up over years of tight currency controls and management.Â
How long the currency's slide will continue remains uncertain, but analysts say the liberalization was inevitable to establish a realistic exchange rate reflecting Ethiopia's economic fundamentals.
The central bank has pledged transparency in currency markets and said stabilizing fluctuations is a priority under ongoing reforms.