The gap between buying and selling rates for foreign currencies at Ethiopian banks has more than doubled over the past four days, according to data from large and mid-sized lenders.
Prior to July 28th, when Ethiopia's central bank shifted away from pegging the birr to the dollar and allowed the currency to float freely, the average spread between USD/birr buy and sell prices across major banks was around three percent.
However, as the birr lost over half its value in the wake of the policy change and currency depreciation ensued, commercial lenders have witnessed the average exchange rate margin balloon out to an average of over eight percent as of Thursday - an increase of well over 150 percent that reflects significant volatility in the marketplace.
At Dashen Bank, one of Ethiopia's mid-sized banks, USD prices have widened from a 90.7899 birr buy rate to a 98.0531 birr sell point, representing an outsized 7.8 percentage point spread that is more than double the bank's margin prior to the exchange rate float.
"Banks are facing increased uncertainty in currency movements since the float and are adjusting rates to account for the added risk," said an expert.
The surge in interbank bid-ask spreads reflects efforts by commercial lenders to protect themselves against volatility as the birr's value plunged against the dollar and other major foreign currencies over the past four days, the expert added.
Economists warn that if sustained over the long-run, the widened foreign exchange margins runs the risk of deterring some dollar inflows crucial to Ethiopia.
