National bank to further depreciate birr

(By Groum Abate- capital)After a long debate, the National Bank of Ethiopia (NBE) is poised to further depreciate the value of the birr against the dollar in the coming few weeks.
The value of the birr Aagainst the dollar has dropped significantly in the last couple of months, after gradually losing ground over the past decade. The birr was trading against the dollar at 6.42 birr in 1996 and 8.31 birr in 2000.
But private and government banks in January this year passed the double digit mark against the dollar.
The value of the birr is determined in an inter-bank market where the national bank sells foreign currency to banks.
Sources told Capital that the level of depreciation would be significant compared to recent fluctuations. On Friday, May 1, 2009 the inter-bank daily foreign exchange rate stands at 11.1693 birr.
The birr has remained relatively stable, especially in comparison to the currencies of most other sub-Saharan African countries, as a result of conservative monetary policies and considerable foreign exchange reserves.
But in recent years, the currency has nose-dived at an alarming rate. Four months since it passed 10 birr to the dollar, the exchange rate stands at 11.1 birr, but this is likely to change in the next few weeks.
Nonetheless, the steady depreciation of the currency means that it takes a growing amount of birr to purchase imports from abroad. While this can help the export economy, since fewer dollars are needed to purchase Ethiopian exports, it also renders valuable imports, such as food for the population, more expensive.
According to the quarterly bulletin of the central bank, in the last quarter of the budget year 2007/08, with regard to foreign exchange market, the average exchange rate of the inter-bank foreign exchange market reached 9.5526/dollar, revealing quarterly and annual depreciation of 2.5 per cent and seven per cent.
Authorities at the National Bank were alarmed by the fast decline of the value of birr in March 2008, when they were forced to depreciate the currency against the dollar by 0.50 birr, following the sudden surge in demand for foreign currency.
The current adjustment of the currency is done with the intention of fighting the high rate of inflation.
The IMF has long been pushing the government to adjust the real exchange rate of the birr against major currencies in order to create a stable macro economic situation, and take pressure off the balance of payments by encouraging exports.