Macro reform in Ethiopia: the float delivers its first results
The parallel market gap has narrowed, but import costs and inflationary pressure persist.
A year into the shift to a market-determined exchange rate, the gap between the official and the parallel rate has narrowed enough to change how importers plan. Letters of credit that used to sit in a queue are being opened closer to the date the goods are ordered.
The cost has landed on households. Imported inputs price in the new rate immediately, while wages and administered prices adjust slowly, and the difference shows up in rent, transport and the cost of a basket of staples.
The question now is sequencing rather than direction. Reform packages of this kind usually depend on three things arriving in the right order: reserves deep enough to smooth a bad month, a credible path for arrears, and a social transfer that reaches people before patience runs out.
What to watch over the next quarter is the spread itself. If it widens again after each foreign exchange auction, the market is telling the central bank that supply is still being rationed somewhere upstream.