National Bank of Ethiopia caps foreign exchange transactions at 2% --[Reported by Umva mag]

The National Bank of Ethiopia (NBE) has introduced a new policy on foreign exchange (FX) transactions with the buying and selling rates not  exceeding 2 per cent.

In a statement issued on Tuesday, the NBE said that the adjustment would take effect on Wednesday, October 16, 2024.

The review of the FX market followed the adoption of a new regime in July 2024.

“The foreign exchange trading spread shall be separately identified and generally should not exceed 2 per cent for posted rates,” the NBE announced. Banks will retain the flexibility to adjust rates “in light of market conditions and based on transparent and principle-based negotiations with specific customers.”

In addition to capping the trading spread, the NBE requires that FX-related fees and commissions be disclosed separately to customers.
“Banks are required to transparently disclose all fees, commissions, or other related charges in transactions with their customers,” the NBE. Said, adding that these fees must also be reported to the central bank in
accordance with existing practices.

Ethiopia transitioned to a market-based foreign exchange regime on July, 28, 2024, as part of broader economic reforms aimed at addressing long-standing distortions in the economy. This change replaced the
previous crawling peg system with a more flexible approach.

Before the shift, commercial banks traded the Ethiopian birr at around 57 to the US dollar, with a spread of less than 1 birr between the buying and selling rates. By October 12, 2024, the average selling rate had soared to 125 birr per dollar with a spread of more than 10
birr.

After the NBE announced the spread cap, the Commercial Bank of Ethiopia adjusted its rates, narrowing the spread to 113 birr for buying and 115 birr for selling.

MG/gik/APA

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