English – National Bank of Ethiopia

NATIONAL BANK OF ETHIOPIA

Monetary Policy Committee Meeting No. 7

The Monetary Policy Committee (MPC) of the National Bank of Ethiopia held its seventh meeting on July 2026. In line with its roles and responsibilities set out in the NBE Establishment Proclamation, the MPC proposes monetary policies for adoption by the NBE Board and consistent with the central bank’s primary objective of maintaining price stability while supporting growth.

PRESS RELEASE

MONETARY POLICY COMMITTEE MEETING NO.7

13 July 2026 | Addis Ababa, Ethiopia

The National Bank of Ethiopia’s Monetary Policy Committee (MPC) has conducted its 7^th regular meeting in line with its roles and responsibilities set out in the NBE Establishment Proclamation 1359/2025, Article 23, to propose monetary policies for approval by the NBE Board. In its 7^th meeting, the MPC reviewed latest real sector development, inflation dynamics, external sector performance and developments in the monetary, financial and fiscal sectors, along with global developments affecting the Ethiopian economy. Based on a comprehensive review of these developments, and the near-term outlooks, the Committee recommend appropriate monetary policy measures to be endorsed by the Board.

The Committee’s 7^th report covers developments in the following areas:

Inflation: The committee noted a distinct decline in inflation following the July 2024 reform compared to the pre reform period, highlighting that it dropped significantly to reach single digits by December 2026 after a long period of high rates. However, following the Middle East conflict that resulted in fuel supply disruptions, headline inflation has rebounded to double digits starting from April 2026. The continuous disinflation trend before the Middle East war has been driven by tight monetary policy, ongoing fiscal consolidation efforts and the effects of enhancement in real sector productivity. Headline inflation rose to 13.4 percent in May 2026 up from 11.7 percent in April and 9.7 percent in December 2025, driven by increases in both food (15.0 percent) and non-food inflation (11.1 percent). Driven by higher transportation costs from fuel supply disruptions during the Middle East conflict, May’s reading marks a nine months high. Furthermore, month-on month inflation stood at 2.3 percent in April and 1.69 percent in May. These figures are significantly higher than the five-year historical average for these months as well as the average monthly inflation for the current fiscal year, signalling renewed inflationary pressures from the oil price shock. Looking ahead, the Committee noted that while inflation is projected to moderate by December 2026, it will likely remain in the double-digits over the six months forecast horizon.
Growth and Economic Activity: The Committee noted that the Ethiopian economy has sustained growth momentum over the past eight years, with real GDP growth averaging 7.5 percent. The composition of GDP continued to evolve, supported by macroeconomic reforms aimed at achieving robust growth under stable conditions. In FY 2024/25, real GDP grew by 9.2 percent, with the industrial sector contributing 3.7 percentage points, services contributing a steady 3.1 percentage points, and agriculture adding 2.3 percentage points. Similarly, real GDP growth is projected to reach 10.2 percent in FY 2025/26, driven by ongoing macroeconomic reforms and progress in key sectors. The NBE’s Composite Indicators of Economic Activity (CIEA), which monitors high-frequency data across various sectors of the economy signals robust growth momentum. Within Industry, strong performance in cement production, electricity generation, and iron & steel output point to vibrant manufacturing activity. The services sector has also exhibited remarkable performance, led by significant upward swings in tourist inflows and both passenger and freight air transport. However, declines were observed in some indicators, including coffee and oilseed export volumes, as well as the import volumes of raw materials and petroleum compared to the same period last fiscal year.
Monetary Developments: Reserve money has registered a decelerating trend and signs of temperance, though it remains elevated. In FY 2025/26, reserve money growth slowed to 43.0 percent Y/Y, down from 66.4 percent during the same period last year. The growth in reserve money is primarily driven by a significant rise in Net Foreign Assets (NFA) accumulation, stemming from gold operations. Similarly, broad money growth trended slightly downward to 32.7 percent y/y compared to 35.2 percent same period last year. Unlike the pre reform period- when domestic credit was the dominant factor-current broad money growth was being driven by both NFA and domestic credit.
Interest Rate Developments: The Committee noted that short term market interest rates have exhibited significant development and remained positive in real terms. In May 2026, monthly weighted average yield for all T-bill declined from 15.5 last year same period to 12.3 percent. Similarly, a 91-day bill yield declined to 11.0 percent, form16.1 percent last year same period. During the review period, the T-bill market witnessed strong demand particularly for the short-term tenors (28, 91, and 182-days), leading to huge oversubscription of about Birr 667.8 billion. The increased participation of individual investors facilitated through newly established investment banks has also broadened participation in the T-bill market. Similarly, the 7-day interbank weighted average rate declined to 14.6 percent in May 2026 from about 18.0 percent in March 2026, reflecting excess liquidity in the market, albeit concentrated to few banks. As of May 2026, the overall interbank money market transaction volume surpassed Birr 3.0 trillion, of which the 7-day maturity accounts for 51 percent (Birr 1.5 trillion) while overnight transactions constituted 49 percent (Birr 1.48 billion).
Banking and Financial Sector: The banking sector maintained its resilience during the review period, deposit mobilization and loans collection have shown encouraging trend, safety and soundness measured by asset quality, non-performing loans (NPLs), and capital buffers witnessed healthy trajectory. The loan to deposit ratio of private banks reduced to 72.7 percent compared to 90.3 percent in 2022/23, reflecting an improvement in banks’ liquidity management behaviour.
Fiscal Sector: Fiscal policy remained prudent and disciplined during the review period, continuing to support the NBE’s tight monetary policy stance and the broader macroeconomic reform agenda. Since the reform measures introduced in July 2024, the government has maintained its commitment to refraining from direct advances from the NBE, which has significantly contributed to moderating base money growth. During the first ten months of FY 2025/26, the overall budget deficit to GDP ratio declined to 0.9 percent, compared to 2.1 percent in FY 2023/24, pre reform period. The T-bill market has played a key role in financing the budget deficit with net financing amounting to Birr 206.5 billion during FY 2025/26.
External Sector: Following the comprehensive reforms introduced in July 2024, Ethiopia’s external sector has shown substantial improvement. Performance strengthened markedly during FY 2025/26, with the balance of payments registering an overall surplus-a significant reversal from the deficit recorded in the pre-reform period. The improvement was mainly driven by a threefold increase in goods export earnings and an improvement in private and official transfers. These gains offset the rising merchandise imports, narrowing the current account deficit from USD 6.2 billion in 2023/24 to USD1.8 billion in 2025/26, while the capital account surplus also expanded. Consequently, the NBE’s foreign exchange reserves increased significantly, reaching 20 times the pre-reform period. These developments underscore the positive impact of ongoing economic reforms aimed at enhancing external competitiveness, boosting foreign exchange earnings, and strengthening the overall sustainability of the external sector.
Global Environment: According to the IMF’s July 2026 World Economic Outlook, the Middle East conflict has disrupted what was previously expected to be a stable global economic trajectory. Compared with earlier assumptions of a short-lived conflict and average oil prices, global growth is now projected to decelerate slightly to 3.0 percent in 2026, while the 2027 forecast slightly up to 3.4 percent from the previous forecast. Recent developments, including the signing of a memorandum of understanding between the United States and Iran aimed at ending the conflict, suggest that downside risks to the outlook may have eased somewhat, although uncertainty remains. Meanwhile global headline inflation is expected to increase to 4.7 percent in 2026 before declining to 3.9 percent in 2027.

MPC Assessment and Recommendations

The Committee noted that the NBE’s tight monetary policy stance has been an essential policy direction given the inflationary pressure from international oil price shocks. The committee re-affirmed its commitment that the tight monetary policy stance should be maintained to achieve NBE’s goal of maintaining a single-digit inflation in the medium term. Accordingly, MPC recommended and the NBE Board approved the following monetary policy actions:

First: The NBE originally implemented the credit cap as a temporary transition instrument until NBE fully moves to an interest rate-based monetary policy framework through indirect policy instruments. As the credit cap has already achieved its objective, the Committee recommended and the NBE Board approved full removal of the credit cap. The removal of the credit cap is a result of a successful transition to an interest-based policy framework with full implementation of indirect monetary policy instruments. It is not a change in NBE’s monetary policy stance. NBE will keep its tight monetary policy stance by using all indirect monetary policy instruments as its disposal effectively.
Second: As the removal of the credit cap requires a counter tightening measure, and to re-affirm the NBE’s commitment to tight monetary policy stance, the Committee proposed an increase in NBE’s policy rate. Accordingly, the Committee proposed and the NBE Board approved to raise the NBE policy rate by 1.0 percentage point while maintaining the +/- 3 percentage point band unchanged.
Third: The Committee recommended and the NBE Board approved that the NBE will implement targeted reserve requirement (additional reserve requirement) based on a regular assessment on individual bank’s loan to deposit ratio development in case credit expansion poses pressure on inflation path.
Fourth: To reduce import-related costs, contain inflationary pass-through, and to promote a more efficient FX market, the Committee proposed and the NBE Board approved the NBE’s FX commission rate to be reduced from 2.5 percent to 1.5 percent (a reduction of 1 percentage point).
Fifth: To enhance export competitiveness and build market confidence, thereby deepening the FX market and improving price discovery, the committee proposed and the NBE Board approved to reduce the foreign exchange surrender requirement on goods export from 50 percent to 30 percent.

In closing, the Committee decided that its next meeting shall take place at the end of September 2026 or at any earlier date as may be warranted.

Monetary Policy Committee

National Bank of Ethiopia

13 July 2026

Governor H.E. Dr. Eyob Tekalign Tolina — **H.E. Dr. Eyob Tekalign Tolina** Governor, National Bank of Ethiopia

Monetary Policy Committee · Meeting No. 7

Governor's Statement

H.E. Dr. Eyob Tekalign shares the National Bank of Ethiopia's latest findings and policy decisions, reflecting the NBE's commitment to transparency and accountability.

As mandated by the NBE Establishment Proclamation 1359/2025

Read in English → አማርኛ ያንብቡ

NATIONAL BANK OF ETHIOPIA

Monetary Policy Committee Meeting No. 6

The Monetary Policy Committee (MPC) of the National Bank of Ethiopia held its second meeting on March 21, 2026. In line with its roles and responsibilities set out in the NBE Establishment Proclamation, the MPC proposes monetary policies for adoption by the NBE Board and consistent with the central bank’s primary objective of maintaining price stability while supporting growth.

31 March 2026 | Addis Ababa, Ethiopia

The National Bank of Ethiopia’s Monetary Policy Committee (MPC) held its 6^th meeting on March 21, 2026. In line with its roles and responsibilities set out in the NBE Establishment Proclamation 1359/2025, Article 23, the MPC regularly meets and proposes monetary policies for approval by the NBE Board. In its 6^th meeting, the MPC reviewed latest real sector development, inflation dynamics, external sector performance and developments in the monetary, financial and fiscal sectors, along with global developments affecting the Ethiopian economy. Based on a comprehensive review of these developments, and the near-term outlooks, the Committee recommends appropriate monetary policy measures to be endorsed by the Board.

The Committee reviewed major developments in the following areas:

Inflation: The Committee noted that the February 2026 inflation rate at 9.7 percent marked a continuous downward trend; meeting the single digit objective of NBE since December 2025. The Committee observed that the continuous deceleration of inflation is driven by the NBE’s sustained tight monetary policy stance since August 2023, fiscal discipline and positive supply side measures. Looking at the components, food inflation has fallen to 10.8 percent, a substantial drop from 14.6 percent a year earlier. Non-food inflation has eased to 8.1 percent, marking a significant slowdown from 15.6 percent in the same period last year. Month-on-month inflation was 0.4 percent in February 2026, reflecting a continued easing of price pressures in recent months. Looking ahead, however, the Committee noted that recent geopolitical tensions in the Middle East will exert upward pressure on global oil prices and will create disruptions in supply chains; thereby posing increased upside risks to the domestic inflation outlook. While noting that the extent of the pressure depends on the length of the turmoil and tackling mechanisms introduced by the government, the Committee underscored maintaining the tight monetary policy stance.

Growth and Economic Activity: The Committee witnessed that Ethiopia’s economy has maintained a robust growth trajectory. Real GDP grew by 9.2 percent in FY 2024/25, higher than the 7.5 percent average growth rate over the last eight years. The service sector’s contribution to economic growth remained steady at 3.1 percent whereas the industrial sector contribution to growth rose from 2.7 percent in 2024 to 3.7 percent in 2025 strongly supported by mining and quarrying sector. Particularly gold contribution surged to 1.0 percent in FY 2024/25 from 0.1 percent in 2023/24, a tenfold increase. Agriculture’s contribution has also seen a steady rise, slightly from 2.2 percent in 2023/2024 to 2.3 percent in 2024/25. The NBE’s Composite Indicators of Economic Activity (CIEA), which monitors high-frequency data across various sectors of the economy signals robust growth momentum in FY 2025/26. Accordingly, the growth is anticipated to be driven by macroeconomic reforms and progress in key economic sectors. In the manufacturing sector, developments in cement production, electricity generation, and iron & steel output among others indicated a vibrant overall industrial sector activity. The services sector has also exhibited remarkable performance, with key indicators swinging upward. Especially tourist inflows and air transport activities (both passenger and freight) demonstrated significant growth over the period. However, declines were observed in some areas including export volume (Coffee and oilseed) and import of raw materials compared to the same period last fiscal year.

Monetary Developments: Monetary aggregates: broad money has been expanding further on y-o-y basis while there is a slower growth in base money. As of February 2026, y-o-y growth in broad money and base money stood at 39.3 percent and 43.2 percent, respectively. Compared with their June 2025 balances, broad money and base money increased by 22.7 percent and 23.0 percent, respectively. Growth in outstanding credit of banks reached 45.3 percent (y-o-y) by end February 2026 while it has expanded by 33.3 percent compared to June 2025 balance. The rapid y-o-y growth in broad money has been largely driven by credit expansion whereas moderate y-o-y growth in base money has been due to a significant sterilization through FX auctions.

Interest Rate Developments: The Committee noted that short term market interest rates have exhibited significant development and remained positive in real terms. In the Treasury Bills market, the 91-day T-bill weighted average yield declined to 12.4 percent in February 2026 from 15.2 percent in February 2025, owing to huge participation from private investors (through investment banks) in addition to increased participation from banks and non-bank institutions. On the other hand, the 7-day interbank weighted average rate rose to 17.9 percent in February 2026 from about 16.5 percent in February 2025, reflecting liquidity pressure in some private banks. The cumulative traded volume in local currency inter-bank money market has grown steadily, reaching Birr 1.97 trillion since the operation started in late October 2024.

Banking and Financial Sector: The banking sector remained safe and sound, with low NPLs and adequate capital. However, some segments of the banking sector continue to face liquidity challenges, given their high loan-to-deposit ratios. However, the introduction of an inter-bank money market and a Standing Lending Facility at the NBE has significantly helped to alleviate the short-term liquidity challenges faced by these banks.

Fiscal Sector: Fiscal policy in the review period appeared to be prudent, and more disciplined; aligned with the NBE’s tight monetary policy stance and the overall macroeconomic reform. Since the reform in July 2024, the government continued to refrain from taking direct advance from the NBE which has significantly contributed to lower base money growth. During the first seven months of FY 2025/26, the overall budget deficit to GDP ratio stood at 1.1 percent, up from 0.7 percent last year same period, despite a 65 percent y-o-y increase in revenue mobilization, as total expenditure grew by 48 percent over the same period. The T-bill market has played a key role to finance the deficit amounting to net Birr 136.6 billion during the first seven months of FY 2025/26.

External Sector: Following the comprehensive reform in July 2024, Ethiopia’s balance of payments registered a surplus, signalling resilience in external accounts. Likewise, during the first eight months of FY 2025/26, Ethiopia’s balance of payments recorded surplus marked by significant improvements in exports; particularly coffee and gold, private transfers, net service trade and increases in capital account. These developments underscore the impact of ongoing economic reforms aimed at improving external competitiveness to strengthen foreign exchange earnings and enhancing the overall sustainability of the external sector.

Global Environment: According to IMF’s January 2026 outlook, global growth was projected at around 3.3 percent in 2026 and 3.2 percent in 2027. However, this outlook is now subject to heightened downside risks following the recent oil price shock associated with escalating Middle East tensions. The sharp rise in energy prices is expected to dampen global growth by raising production costs, eroding real incomes, and tightening financial conditions, particularly in oil-importing economies. As a result, while the baseline projections remain broadly intact, the balance of risks has shifted to the downside, with the magnitude of the impact depending critically on the duration and intensity of the conflict and the persistence of elevated oil prices.

MPC Assessment and Recommendations

The Committee noted that, to sustain the single-digit inflation since December 2025, a continued tight monetary policy stance remains necessary. In this regard, the Committee underscored that the NBE should employ all available instruments, individually or in combination. Consequently, the Committee reaffirmed its commitment to maintain a tight monetary policy stance to achieve the price stability objective.

Accordingly, the Committee decided to maintain the NBE policy rate and annual credit growth caps at their current levels. However, in light of heightened global economic uncertainty, driven by the conflict in the Middle East and its potential impact on the domestic economy, the Committee emphasized the necessity of more frequent reviews of key macroeconomic developments. The Committee agreed to reconvene by late April, or earlier if warranted, to evaluate whether additional policy measures are required.

Monetary Policy Committee

National Bank of Ethiopia

31 March 2026

NATIONAL BANK OF ETHIOPIA

Monetary Policy Committee Meeting No. 5

The Monetary Policy Committee (MPC) of the National Bank of Ethiopia held its second meeting on December 22, 2025. In line with its roles and responsibilities set out in the NBE Establishment Proclamation, the MPC proposes monetary policies for adoption by the NBE Board and consistent with the central bank’s primary objective of maintaining price stability while supporting growth.

30 December 2025 | Addis Ababa, Ethiopia

The National Bank of Ethiopia’s Monetary Policy Committee (MPC) held its 5^th meeting on December 22, 2025. In line with its roles and responsibilities set out in the NBE Establishment Proclamation 1359/2025, Article 23, the MPC regularly proposes monetary policies for approval by the NBE Board. In its 5^th meeting, the MPC reviews latest real sector development, inflation dynamics, external sector performance and developments in the monetary, financial and fiscal sectors, as well as global situations that have impact on the Ethiopian economy. Based on a thorough review of these developments, and the near-term outlooks, the Committee recommends appropriate monetary policy measures to be endorsed by the Board.

The Committee reviewed major developments in the following areas:

Inflation: The Committee noted that the November 2025 inflation rate at 10.9 percent shows a continuous downward trend indicating NBE’s eventual single digit headline inflation objective is on the right track, albeit not yet attained. The on-going slowdown in inflation rates over the past months was judged by the Committee to be driven by the continued tight stance of monetary policy, the improvement in agricultural production, and the gradual nature of adjustments in key administered prices. Looking at specific components, food inflation has fallen to 10.6 percent, a substantial drop from 18.5 percent a year earlier. Non-food inflation at 11.4 percent has also shown a significant drop vis-a-vis last year same period. Month-on-month deflation rate at 1.4 percent in November 2025 shows a significant and continued easing of price pressures in the economy.

Growth and Economic Activity: The Committee noted that Ethiopia’s economy has maintained a robust growth movement. Real GDP grew by 9.2 percent in FY 2024/25, higher than 7.5 percent last eight years average growth. The service sector’s contribution to economic growth remained steady at 3.1 percent whereas the industrial sector contribution to growth rose from 2.7 percent in 2024 to 3.7 percent in 2025 strongly supported by mining and quarrying sector particularly gold production with contribution surged to 1.0 percent in FY 2024/25 from 0.1 percent in 2024. Agriculture’s contribution has also seen a steady rise, slightly from 2.2 percent in 2023/2024 to 2.3 percent in 2024/25. Economic activity indicators continue to show strong growth momentum, as captured by NBE’s latest Composite Indicators of Economic Activity (CIEA), which tracks high-frequency data in various segments of the economy. Accordingly, multiple supply-side initiatives in agriculture, robust growth taking place in key parts of the industrial sector supported in part by the easing of FX constraints and government targeted support through the National Council of Manufacturing. Improvements in services such as air transport, and tourism are experiencing noticeable growth over the period as well. However, declines were observed in some areas including export items (oilseed, pluses and flowers), import value of raw materials, and import volume of petroleum compared to the same period last fiscal year.

Monetary Developments: Monetary aggregates have been expanding at a faster pace, reflecting a moderate easing of credit policies together with fiscal and external developments. As of November 2025, y-o-y growth in broad money and base money stood at 38.8 percent and 67.3 percent, respectively, the highest growth in both cases recently. Compared with their June 2025 balances, broad money and base money increased by 10.7 percent and 7.8 percent, respectively. Growth in outstanding credit of banks reached 44.5 percent (y-on-y) by end November 2025, while also expanded by 18.3 percent compared to June 2025 balance. The much faster growth rate of reserve money mainly has been driven by NBE’s gold-related foreign exchange accumulation and the corresponding injection of local currency liquidity into the banking system. Though the reserve money growth appeared to be expansionary, the credit cap policy had influenced the multiplier which in turn limited the expansion of broad money despite end of November 2025 annual growth is the highest recent years and also much higher than the nominal GDP growth. This trend, therefore, has been gauged as a concerning trajectory going forward.

Interest Rate Developments: The Committee noted that market interest rates have shown remarkable development and remained positive in real terms except the saving rate. In the Treasury Bills market, the weighted average yield of 91-day T-bills has been showing an increasing trend and reached 16.2 percent in November 2025 from 14.3 percent last year same period. In the local currency inter-bank money market, the 7-day weighted average rate as of November 2025 stood at 17.3 percent, which was within the NBE’s interest rate corridor of 15 percent plus-or-minus three percent. The cumulative traded volumes in local currency inter-bank money market has continued to grow steadily and stood at Birr 1.26 trillion since operational late October 2024.

Banking and Financial Sector: The banking sector boarded safe and sound, with low NPLs and adequate capital. However, some segments of the banking sector continue to face liquidity challenges, given their high loan-to-deposit ratios. However, the introduction of an inter-bank money market and a Standing Lending Facility at the NBE has been helping to commendably alleviate the short-term liquidity challenges faced by those banks.

Fiscal Sector: Fiscal policy in the review period appeared to be prudent and more disciplined and aligned with the NBE’s tight monetary policy stance. During the first five months of FY 2025/26, the government continued to be refrained from borrowing from the NBE which has been highly supportive of the NBE’s monetary policy stance. Instead, T-bill market is being used to finance government budget deficit where more than Birr 70 billion has been mobilized during the firs five months of FY 2025/26.

External Sector: The Committee realized that, following the comprehensive reform in July 2024, Ethiopia’s balance of payments registered a surplus, signalling resilience in external accounts. During the first five months of FY 2024/25, strong growth trajectory in export of goods driven by particularly growth in gold and coffee exports, including encouraging growth in remittances, growth in net services trade and capital flows. These developments have maintained current account surplus and overall balance of payment remained positive, which have played a significant role in the NBE’s international reserve build up to the highest level ever.

Global environment: As per IMF’s October 2025 outlook, global growth is projected to slow down from 3.3 percent in 2024 to 3.2 percent in 2025 and further to 3.1 percent in 2026. The modest deceleration reflects stubborn headwinds from uncertainty and rising trade barriers, even though the increase in tariff and its effect has been smaller than originally announced. Inflation is projected to vary significantly across regions. Global Inflation is expected to decline to 4.2 percent in 2025 and to 3.7 percent in 2026.

MPC Assessment and Recommendations

The Committee noted that NBE’s tight monetary stance has been indispensable to the on-going disinflation process and agreed that this policy stance should remain in place and/or strengthened until the envisioned target of reaching single-digit inflation is adequately realised.

Accordingly, the MPC recommended and the NBE Board approved the following monetary policy measures:

First, the Board decided to maintain the National Bank Rate at 15 percent while also keeping unchanged existing rates applicable for NBE’s Standing Deposit Facility and Standing Lending Facility.

Second, the committee recommend and NBE Board approved to maintain the credit cap policy (24 percent y-o-y growth) until next MPC meeting. This is on account of the following facts; (i) the highest credit expansion in November 2025 (44.5 percent) (ii) NBE’s policy rate has yet to develop a strong transmission mechanism, and additional time is required before it can serve as an effective anchor alone, (iii) given a substantial liquidity improvement within the banking system, it is indispensable to ensure that liquidity injection into the economy is managed in a gradual and orderly manner so as to avoid any unintended expansionary effects going forward.

Third, as the committee realized that there is excess liquidity in the system reflected by big surge in new disbursement during the first five months and significant outstanding loan growth y-on-y in November 2025, which in turn led to the highest annual growth in broad money supply, the MPC recommended and the Board approved an increase in the reserve requirement ratio to 10 percent on monthly average with the daily reserve requirement remain at 5 percent. The Banks will be given three to six months to fulfil the requirement.

Fourth, as the NBE has adopted a price based monetary policy framework and introduced NBE policy rate since July 2024, it is essential to focus on making its policy rate effective to affect the cost of money in the economy indirectly through affecting market rates for its final objective of price stability. Accordingly, removing the current minimum saving rate shall enhance saving from general public and maintain policy consistency. Therefore, the MPC recommended and the Board approved the termination of NBE’s setting minimum deposit interest rate leaving it to negotiation between depositors and banks and/or other financial institutions. In addition to these policies, NBE will use any policy instruments in its disposable whenever it comprehends that its primary objective is at risk based on in-depth analysis of monetary conditions.

In closing, the Committee decided that its next meeting shall take place at the end of March 2026 or at any earlier date as may be warranted.

Monetary Policy Committee

National Bank of Ethiopia

30 December 2025

NATIONAL BANK OF ETHIOPIA

Monetary Policy Committee Meeting No. 4

The Monetary Policy Committee (MPC) of the National Bank of Ethiopia held its second meeting on September 25, 2025. In line with its roles and responsibilities set out in the NBE Establishment Proclamation, the MPC proposes monetary policies for adoption by the NBE Board and consistent with the central bank’s primary objective of maintaining price stability while supporting growth.

29 September 2025 | Addis Ababa, Ethiopia

The National Bank of Ethiopia’s Monetary Policy Committee (MPC) held its fourth meeting on September 25, 2025. In line with its roles and responsibilities under the NBE Establishment Proclamation No. 1359/2025, Article 23, the MPC proposes monetary policies for endorsement by the NBE Board. These policies are designed to align with the central bank’s primary objective of maintaining price stability while fostering sustainable and inclusive growth. As part of this process, the MPC reviews Ethiopia’s recent real sector performance, inflation trends, and developments in the monetary, financial, fiscal, and external sectors, as well as global conditions that significantly affect the Ethiopian economy. Based on its in-depth assessment of these developments and the near-term outlook, the Committee recommends an appropriate monetary policy stance for the period ahead.

The Committee reviewed major developments in the following areas:

Inflation: The Committee noted that the August 2025 inflation rate, at 13.6 percent, reflects a continued downward trend. The ongoing moderation in inflation over recent months was attributed to the tight monetary policy stance, improved agricultural production, and the gradual adjustment of key administered prices. Looking at the specific components, the MPC observed that food inflation declined to 12.7 percent, a considerable slowdown from 18.8 percent recorded a year earlier. In contrast, non-food inflation stood at 15.1 percent, showing a slight increase compared to the same period last year, partly due to exchange rate pass-through effects. Meanwhile, the month-on-month inflation rate for August 2025 fell to 1.1 percent, indicating a moderate easing of new price pressures in the economy.

Growth and Economic Activity: The Committee noted that economic activity indicators continue to show strong growth momentum, as captured by NBE’s latest Composite Index of Economic Activity (CIEA), which tracks high-frequency data in various segments of the economy. Accordingly, multiple supply-side initiatives in agriculture, robust growth in key parts of the industrial sector (aided in part by the easing of FX constraints), exports of goods (particularly coffee and gold), and services such as air transport and tourism have experienced noticeable growth over the period. However, declines were observed in some areas, such as imports of semi-finished goods and consumer goods, compared to the previous fiscal year.

Monetary developments: Monetary aggregates have been expanding at a faster pace, reflecting the moderate easing of credit policies as well as fiscal and external developments. Year-on-year growth in broad money and base money stood at 23.1 percent and 70.7 percent, respectively, as of end-August 2025, while growth in domestic credit was 14.0 percent. By the end of August 2025, the outstanding loans of the banking system had expanded by 5.4 percent compared to the June 2025 balance. The accelerated growth of reserve money reflects NBE’s gold-related foreign exchange accumulation and the corresponding injection of local currency liquidity into the banking system. Although reserve money growth appeared expansionary, the credit cap policy constrained the money multiplier and limiting the expansion of broad money.

Interest rate developments: The Committee noted that short-term market interest rates have been on a declining trend, while remaining close to the policy rate and positive in real terms, which is an encouraging sign for money market development. In the Treasury Bills (T-bills) market, the weighted average yield on 91-day T-bills stood at 15.0 percent in August 2025, down from 17.6 percent in June 2025, reflecting improved liquidity conditions. In the local currency interbank money market, the weighted average rate was 13.7 percent in August 2025, also indicating improvement in liquidity, and remained within NBE’s interest rate corridor of 15 percent, plus or minus three percentage points. Cumulative transaction volumes in the local currency interbank money market continued to expand steadily, reaching Birr 945.1 billion as of October 2024.

Banking and Financial Sector: The banking sector remained safe and sound, characterized by low non-performing loans (NPLs) and adequate capital levels. However, certain segments of the sector continue to face liquidity pressures due to high loan-to-deposit ratios. The establishment of an interbank money market and the introduction of a Standing Lending Facility by NBE have helped ease these short-term liquidity challenges.

Fiscal position: Fiscal policy during the review period appeared prudent, disciplined, and aligned with NBE’s tight monetary policy stance. In the first two months of FY 2025/26, similar to the pattern observed in the previous fiscal year, the government refrained from borrowing from NBE, a development that has strongly supported the Bank’s tight monetary policy stance.

External sector: The Committee acknowledged that, following the comprehensive reform of July 2024, the external sector has continued to perform impressively. This is reflected in the strong growth trajectory of goods exports, particularly gold and coffee, alongside significant growth in remittances and moderate gains in net services trade. These developments have helped sustain current account surplus, while the overall balance of payments has remained in surplus, continuing the robust performance observed last year.

Global environment: According to the IMF’s July 2025 projection, global economic growth is expected to be slightly higher than the previous forecast. Global GDP growth is projected at 3.0 percent in 2025 and 3.1 percent in 2026. The forecast for 2025 is 0.2 percentage points higher than the April 2025 outlook, while the 2026 projection is 0.1 percentage points higher. This upward revision reflects stronger-than-expected front-loading in anticipation of higher tariffs, lower average effective U.S. tariff rates than those announced in April, improved financial conditions, partly due to a weaker U.S. dollar; and fiscal expansion in several major economies. Global inflation is projected to continue declining, with headline inflation falling to 4.2 percent in 2025 and 3.6 percent in 2026—virtually unchanged from the IMF’s April 2025 forecast. This reflects ongoing trends of cooling demand and falling energy prices. However, tariffs, acting as a supply shock, are expected to gradually feed into U.S. consumer prices, with the main impact on inflation likely in the second half of 2025.

MPC Assessment and Decision

While the ongoing progress in reducing inflation is encouraging, the Committee noted that the rate remains above the medium-term target of achieving single-digit inflation. Accordingly, the Committee agreed that a disinflationary monetary policy stance remains appropriate and should be maintained until further progress is achieved. The Committee also emphasized that lifting the credit ceiling represents an important step toward shifting from direct to indirect monetary policy instruments. However, it stressed that careful calibration of the credit ceiling is required to ensure that the resulting credit expansion does not inadvertently loosen the monetary policy stance or create risks to financial stability. In light of these considerations, the Committee judged that the current prudent monetary policy stance should be maintained.

Consistent with this view, the MPC recommended and the NBE Board approved the following monetary policy actions:

First, the Committee decided to maintain the National Bank Rate at 15 percent while also keeping unchanged existing rates applicable for NBE’s Standing Deposit Facility, Standing Lending Facility, and reserve requirements on bank deposits.

Second, the Committee agreed that lifting the credit growth ceiling is an important step in advancing the new monetary policy framework, with the policy rate serving as the key signal of NBE’s stance. However, to safeguard financial stability and preserve recent progress in reducing inflation, the Committee concluded that fully removing the ceiling at this stage would be imprudent, given NBE’s firm commitment to a tight monetary policy. While the removal of the ceiling had been anticipated for September 2025, contingent on sustained disinflation, the Committee recommended retaining a credit growth target for now, with a moderate upward adjustment. Accordingly, the Committee has decided to raise the credit growth target from 18 percent to 24 percent for FY 2025/26. The Committee will revisit this matter in its upcoming meetings.

Third, the Committee noted that NBE will make use of the full range of market-based monetary policy tools at its disposal. These include the central bank’s policy rate, open market operations, foreign exchange interventions, and adjustments to reserve requirements, among others. The tools may be applied individually or in combination, as needed, depending on prevailing inflationary and monetary conditions.

In closing, the Committee decided that its next meeting shall take place in December 2025

Monetary Policy Committee

National Bank of Ethiopia

September 29, 2025

NATIONAL BANK OF ETHIOPIA

Monetary Policy Committee Meeting No. 3

The Monetary Policy Committee (MPC) of the National Bank of Ethiopia held its second meeting on Jun 30, 2025. In line with its roles and responsibilities set out in the NBE Establishment Proclamation, the MPC proposes monetary policies for adoption by the NBE Board and consistent with the central bank’s primary objective of maintaining price stability while supporting growth.

30 June 2025 | Addis Ababa, Ethiopia

The National Bank of Ethiopia’s Monetary Policy Committee (MPC) held its third meeting on June 30, 2025. In line with its roles and responsibilities set out in the NBE Establishment Proclamation 1359/2025, Article 23, the MPC proposes monetary policies for adoption by the NBE Board and consistent with the central bank’s primary objective of maintaining price stability while supporting growth. In this context, the MPC reviews Ethiopia’s latest real sector developments, inflation dynamics, and developments in the monetary, financial, fiscal, and external sectors, as well as global conditions that have a substantive impact on the domestic economy. Based on a thorough assessment of these developments, and the near-term outlook, the Committee recommends the appropriate monetary policy stance to be adopted for the period ahead.

The Committee reviewed major developments in the following areas:

Inflation: The Committee noted that the most recent inflation outturns for the months of April and May 2025 have both shown a rate of 14.4 percent. Looking at specific components, the MPC observed that food inflation has fallen to 12.1 percent, a substantial drop from the 25.6 percent rate prevailing a year ago. Non-food inflation, at 17.8 percent, is also below year-ago levels though it has shown a slight uptick over the last few months due in part to exchange rate pass-through effects. With respect to the most recent month-on-month inflation rates, these were subdued at 0.1 and 0.2 percent respectively for April and May 2025, which points to an easing of new price pressures in the economy. At the same time, the Committee noted that inflation needs to drop further still from current levels and that the elevated cost of living—given high cumulative inflation over the past several years—remains a serious macroeconomic challenge requiring the central bank to stay the course with its prudent policy stance.

Growth and Economic Activity: The Committee noted that economic activity indicators continue to show strong growth momentum, as captured by NBE’s latest Composite Index of Economic Activity (CIEA), which tracks high-frequency data in various segments of the economy. Broad-based growth is being supported by multiple supply-side initiatives in agriculture, by rising capacity utilization rates in the industrial sector (aided in part by the easing of FX constraints), by exceptional increases in export of goods (particularly coffee and gold), and by on-going expansion being registered in services such as air transport and tourism.

Monetary developments: Monetary aggregates have been expanding at a faster pace in recent months, reflecting the moderate easing of credit policies as well as fiscal and external developments. Growth in broad money is estimated at 23.3 percent as of end-June 2025, while the outstanding loan stock of all commercial banks is expected to show growth of 18.1 percent. Reserve money is anticipated to show even faster growth, reflecting NBE’s substantial gold-related foreign exchange accumulation, but this has not translated into excessive growth in either domestic credit or in broad money due to NBE’s still-binding cap on overall lending growth. Accordingly, excess bank reserves at NBE have risen significantly from year-ago levels, and growth in broad money and in credit have both remained below nominal GDP growth, consistent with NBE’s desired policy stance.

Interest rate developments: The Committee noted that short-term market interest rates have remained above the policy rate and positive in real terms since December 2024. In the Treasury Bills market, the weighted average yield of 91-day T-bills stood at 17.7 percent in May 2025, up from 16.1 percent at end-December 2024. In the inter-bank money market, the weighted average rate stood at 17.5 percent as of May 2025, which was well within the NBE’s interest rate corridor of 15 percent plus-or-minus three percent. The cumulative transaction volumes in the inter-bank money market continues to grow steadily and stood at Birr 764.2 billion as of June 8, 2025.

Banking and Financial Sector: The banking sector remained safe and sound, with low NPLs and adequate capital. However, some segments of the banking sector continue to face liquidity challenges, given their high loan-to-deposit ratios. The introduction of an inter-bank money market and a Standing Lending Facility at the NBE has been helping to alleviate the short-term liquidity challenges faced by some banks.

Fiscal position: Fiscal policy in the review period has been well aligned with the NBE’s tight monetary policy stance. In FY 2024/25, the government has eliminated borrowing from the central bank, which has been highly supportive of the NBE’s monetary policy stance.

External sector: The Committee recognized that, following the comprehensive reform in July 2024, exceptionally strong performance is being registered in the external sector, as revealed by record growth in export of goods, moderate growth in net services trade, remittances, as well as substantially higher capital account inflows. At the same time, import growth remains muted thanks to price declines in some key global commodities (fuel and fertilizers) as well as owing to the impacts of exchange rate reform. These developments have resulted in a significant drop in the current account deficit, a large overall balance of payment surplus, and a near three-fold jump in NBE’s FX reserve levels.

MPC Assessment and Decision

The Committee noted that NBE’s tight monetary stance has been indispensable to the on-going disinflation process and agreed that this policy stance should remain in place until the intended target of reaching single-digit inflation is satisfactorily achieved.

Accordingly, the MPC recommended and the NBE Board approved the following monetary policy actions:

First, the Committee decided to maintain the National Bank Rate at 15% while also keeping unchanged existing rates applicable for NBE’s Standing Deposit Facility, Standing Lending Facility, and reserve requirements on bank deposits.

Second, given the importance of entrenching the recent progress on inflation, the Committee extended the 18 percent cap on bank credit growth until the next MPC meeting in September 2025.

Third, as part of an effort to remove one of the last remaining elements of direct policy instruments, the Committee decided to repeal NBE Directive MFAD/TRBO/001/2022 that required Treasury Bond purchases by commercial banks. The Committee judges that this change is now feasible given the substantial improvement in the Government’s revenue generation capacity and in its ability to cover the budget’s deficit financing needs through concessional external loans and market-based domestic debt instruments.

Fourth, the Committee agreed that while the revision of caps on credit growth is anticipated by September 2025—subject to continued progress on inflation—this change will not generate any unintended loosening of monetary policy as NBE will make use of the full range of market-based monetary policy tools at its disposal. These policy tools include the central bank’s policy rate, Open Market Operations, foreign exchange interventions, and changes in reserve requirements—all of which can be used separately or in combination, as warranted, depending on inflationary and monetary conditions.

In closing, the Committee decided that its next meeting shall take place at the end of September 2025 or at any earlier date as may be warranted.

MONETARY POLICY COMMITTEE

NATIONAL BANK OF ETHIOPIA

JUNE 30, 2025

NATIONAL BANK OF ETHIOPIA

Monetary Policy Committee Meeting No. 2

The Monetary Policy Committee (MPC) of the National Bank of Ethiopia held its second meeting on March 25, 2025. In line with its roles and responsibilities set out in the NBE Establishment Proclamation, the MPC proposes monetary policies for adoption by the NBE Board and consistent with the central bank’s primary objective of maintaining price stability while supporting growth.

25 March 2025 | Addis Ababa, Ethiopia

The National Bank of Ethiopia’s Monetary Policy Committee (MPC) held its second meeting on March 25, 2025. In line with its roles and responsibilities set out in the NBE Establishment Proclamation 1359/2025, Article 23, the MPC proposes monetary policies for adoption by the NBE Board and consistent with the central bank’s primary objective of maintaining price stability while supporting growth. In this context, the MPC reviews Ethiopia’s latest inflation dynamics, developments in the monetary, financial, fiscal, and external sectors, as well as global conditions that have a substantive impact on the domestic economy. Based on a thorough assessment of these developments as well as the near-term outlook, the Committee recommends the appropriate monetary policy stance to be adopted for the period ahead.

The Committee reviewed major developments in the following areas:

Inflation: The Committee noted that the February 2025 inflation rate of 15 percent marks a welcome decline since the last MPC meeting of December 2024. The on-going moderation in inflation rates over the past few months was judged by the Committee to be driven by the tight stance of monetary policy, the improvement in agricultural production, and the gradual nature of adjustments in key administered prices. Looking at specific components, the MPC observed that food inflation has fallen to 14.6 percent, a substantial drop from the 31 percent rate prevailing a year ago. Non-food inflation, at 15.6 percent, is also well below year-ago levels though it has shown a slight uptick over the last few months due in part to exchange rate pass-through effects. At the same time, the most recent month-on-month inflation rate for February 2025 dropped to 0.5 percent, which marks the fourth consecutive reading of low monthly inflation and points to a significant easing of new price pressures in the economy.
Growth and Economic Activity: The Committee noted that economic activity indicators continue to show strong growth momentum, as captured by NBE’s latest Composite Index of Economic Activity (CIEA), which tracks high-frequency data in various segments of the economy. A favorable ‘meher’ rainy season in most parts of the country and multiple supply-side initiatives in agriculture suggest a record harvest is likely for the current crop harvest season. Other activity indicators indicate robust growth taking place in key parts of the industrial sector (aided in part by the easing of fx constraints), in export of goods (particularly coffee and gold), and in services such as air transport and tourism.
Monetary developments: Monetary aggregates have been expanding at a faster pace since the last meeting of the MPC, reflecting the moderate easing of credit policies as well as fiscal and external developments. Growth in broad money and base money stood at 22.8 percent and 42.0 percent, respectively, as of January 2025, while growth in domestic credit remains relatively unchanged at 19.8 percent. The much faster growth rate of reserve money reflects NBE’s recent gold-related foreign exchange accumulation and the corresponding injection of local currency liquidity into the banking system.
Interest rate developments: The Committee noted that short-term market interest rates have for the first time turned positive in real terms. In the Treasury Bills market, the weighted average yield on 364-day T-bills rose to 17.7 percent in February 2025, from 15.9 percent at end-December 2024. In the inter-bank money market, where banks lend to and borrow from each other, the weighted average rate as of February 2025 stood at 16.7 percent, which was well within the NBE’s interest rate corridor of 15 percent plus-or-minus three percent. Transaction volumes in the inter-bank money market continue to grow steadily and stood at Birr 338.8 billion as of end-February 2025.
Banking and Financial Sector: The banking sector remained safe and sound, with low NPLs and adequate capital. However, some segments of the banking sector continue to face liquidity challenges, given their high loan-to-deposit ratios. The introduction of an inter-bank money market and a Standing Lending Facility at the NBE has been helping to alleviate the short-term liquidity challenges faced by some banks.
Fiscal position: The fiscal policy stance continued to be prudent. Strict fiscal discipline has allowed for zero monetary financing of the deficit so far in the fiscal year and been highly supportive of the central bank’s monetary policy stance.
External sector: The Committee recognized the major improvements taking place in the external sector, as revealed by continued strong growth in export of goods and services, increased remittances, as well as higher capital account inflows linked to the exchange rate reforms of July 2024. These developments have resulted in a current account surplus for the first half of the fiscal year and substantially boosted FX reserve levels.
Global environment: Per the IMF’s January 2025 projections, global growth is expected to remain steady at 3.3 percent both in 2025 and 2026, while global inflation is forecast to decline gradually from 4.2 percent in 2025 and to 3.5 percent in 2026. However, reflecting recent geo-political developments, uncertainties have subsequently arisen on the outlook for global tariffs and trade flows, which may adversely affect inflationary developments. Trends in global commodity prices remain broadly favorable for the Ethiopian economy, as oil prices have declined by 9.0 percent since the start of the fiscal year while prices for Ethiopia’s largest exports (coffee and gold) remain at or close to record highs, contributing to a strong balance of payments improvement.

MPC Assessment and Decision

While the on-going progress in reducing inflation is encouraging, the Committee noted that the inflation rate remains above the intended target of reaching single-digit inflation over the medium term. Accordingly, the Committee agreed that a disinflationary monetary policy stance remains appropriate and should remain in place until there is still further progress in reducing inflation. The Committee also noted that the management of recent foreign exchange inflows required close attention and a cautious approach to ensure that the associated monetary injections do not create an unintended loosening of the monetary policy stance. In light of these considerations, the Committee judged that the current prudent stance of monetary policy should be maintained.

Consistent with this view, the MPC recommended and the NBE Board approved the following monetary policy actions:

First, the MPC agreed to leave the current 15 percent National Bank Rate (NBR) unchanged, given the need to reduce the still elevated inflation rate and the importance of anchoring exchange rate expectations.
Second, as the move to an interest rate-based monetary policy regime remains in a transitional phase, the MPC recommended keeping unchanged the prevailing 18 percent cap on annual credit growth.
Third, the Committee decided to keep existing rates applicable for NBE’s Standing Deposit Facility, Standing Lending Facility and reserve requirements on bank deposits.

The Committee noted that its future monetary policy decisions will be heavily dependent on inflation outturns and broader economic developments over the coming months. The Committee decided that its next meeting shall take place at the end of June 2025.

NATIONAL BANK OF ETHIOPIA

Monetary Policy Committee Meeting 002

The Committee decided that its next meeting shall take place on March 25, 2025.

NATIONAL BANK OF ETHIOPIA

Monetary Policy Committee Inaugural Meeting

The Monetary Policy Committee (MPC) of the National Bank of Ethiopia held its inaugural meeting on December 31, 2024. In line with its roles and responsibilities set out in the NBE Establishment Proclamation, the MPC proposes monetary policies for adoption by the NBE Board and consistent with the central bank’s primary objective of maintaining price stability while supporting growth.

31 December 2024 | Addis Ababa, Ethiopia

The Monetary Policy Committee (MPC) of the National Bank of Ethiopia held its inaugural meeting on December 31, 2024. In line with its roles and responsibilities set out in the NBE Establishment Proclamation, the MPC proposes monetary policies for adoption by the NBE Board and consistent with the central bank’s primary objective of maintaining price stability while supporting growth. In this context, the MPC reviews Ethiopia’s latest inflation developments, trends in the fiscal, external, and financial sectors, broader economic activity indicators, and global conditions that have a material impact on domestic conditions. Based on a thorough assessment of these developments as well as the near-term outlook, the Committee recommends the appropriate monetary policy stance—as well as a specific package of monetary policy actions—to be adopted for the period ahead.

In its deliberations on Ethiopia’s most recent macroeconomic conditions, the Committee reviewed major developments in the following areas:

Inflation: The Committee noted that year-on-year inflation has continued its downward trajectory and stood at a five-year low of 16.9 percent as November 2024, helped by the tightened stance of monetary policy adopted in August 2023. Food inflation, though still elevated at 18.5 percent, has been on a broadly moderating trend for over a year. Non-food inflation showed a slight increase to 14.4 percent in November 2024, reflecting in part recent exchange rate effects and increases in some administered prices. At the same time, the most recent monthly inflation outturn for November 2024 was marked by a substantial decline in month-on-month inflation to -0.8 percent, in line with seasonal norms and indicative of limited exchange rate pass-through effects to date.

Growth and Economic Activity: Following real GDP growth of 8.1 percent in 2023-24, activity indicators point to continued strong growth momentum so far this fiscal year. A favorable rainy season in most parts of the country and multiple supply-side initiatives in agriculture suggest a record harvest is likely for the current crop season. Quarterly production data on electricity, iron and steel suggest strong year-on-year output growth in the industrial sector, while service activity also appears supported by increases in air transport and tourism arrivals. Overall, most activity indicators suggest a continued strong growth for the 2024-25 fiscal year.

Monetary developments: The Committee noted that developments in key monetary aggregates were marked by a sharp slowdown in growth rates in 2023-24, which helped reduce inflationary pressures and expectations last year. At the same time, somewhat higher growth rates have been observed for all key monetary aggregates since the start of the current fiscal year: growth in broad money and base money stood at 20 percent and 17 percent, respectively, as of November 2024, while growth in domestic credit was similarly strong at 19 percent on a year-on-year basis. However, despite the recent pick-up in monetary growth rates, the Committee noted that there has been a sharp reduction in key monetary aggregates relative to the size of the economy—with growth rates of broad money, base money, and domestic credit all well below growth in nominal GDP—and that a gradual reversal of this real decline would be welcome to support growth over the medium-term.

Banking and Financial Sector: The banking system was assessed to be safe and sound, with low NPLs, high provisions, and adequate capital. At the same time, significant liquidity strains were noted in some segments of the banking system, which was reflected in high loan-to-deposit ratios and a low ratio of excess reserves to deposits for the private banking system. These liquidity challenges are being mitigated somewhat by the recent availability of both an inter-bank money market and a Standing Lending Facility at the NBE.

Fiscal position: Budgetary developments have been broadly favorable given on-going fiscal consolidation. This has allowed for zero monetary financing of the deficit so far in the fiscal year and thus been highly supportive of the central bank’s monetary policy stance.

External sector: Helped by the exchange rate reform of July 2024, the external position is showing significant improvement, including strong growth in exports and remittances, modest import compression, and substantial capital inflows from private and official sources. These developments have generated a current account surplus in the first quarter of the fiscal year and also boosted FX reserves to record highs at both commercial banks and at the NBE.

Global environment: Commodity price developments—which are the primary channel through which the global economy affects domestic conditions—have been broadly favorable. Global oil prices have declined by 15 percent since the start of the fiscal year while prices for Ethiopia’s largest exports (coffee and gold) have risen to record highs, contributing to a strong balance of payments improvement. While some parts of the global economy (including in Ethiopia’s major trading partners) have experienced a growth slowdown, this has not yet had a material impact on exports or FDI. At the same time, some of the more positive turns in the world economy—such as the easing of monetary policies in advanced economies and the strengthening recovery in some economies—have had relatively limited impacts to date, reflecting Ethiopia’s still low level of trade and financial integration with the outside world.

MPC Assessment and Decision

The MPC noted that while recent inflation outturns have been encouraging and show a generally disinflationary direction, it nonetheless remains important to maintain a prudent monetary stance. In particular, the Committee noted that the inflation rate remains elevated and is well above the intended target of reaching single-digit inflation over the medium term. In addition, in the Committee’s view, two aspects of the macroeconomic outlook call for a cautious monetary stance: the expected easing of fiscal conditions over the coming months (given the normal budgetary execution cycle as well as increases in salaries, social spending, and safety nets) and the moderately expansionary impulse likely from increased net foreign exchange inflows. Set against these considerations, the Committee recognized the disinflationary trend in the latest monthly inflation data (-0.8 percent for November 2024), the unusually tight liquidity and credit conditions prevailing in the banking system, and the sharp real decline in monetary aggregates relative to nominal GDP. In balancing these considerations, the Committee judged that the current prudent stance of monetary policy should be maintained, albeit with modest modifications.

Consistent with this view, the MPC recommended and the NBE Board approved the following monetary policy actions:

First, the MPC decided to leave unchanged the current National Bank Policy Rate (NPR) of 15 percent, given the need to reduce the still elevated inflation rate and also the importance of anchoring exchange rate expectations.

Second, as the move to an interest-based monetary policy regime remains in a transitional phase, the MPC recommended the continued use of a credit growth target but with a moderate adjustment in the targeted credit growth rate from 14 percent to 18 percent.

Third, the Committee maintained unchanged the existing rates applicable for NBE’s Standing Deposit Facility, Standing Lending Facility, and reserve requirements on bank deposits.

The Committee noted that its future monetary policy decisions will be heavily dependent on inflation outturns over the coming months. The Committee decided that its next meeting shall take place on March 25, 2025.

NATIONAL BANK OF ETHIOPIA

The National Bank of Ethiopia Announces the Launch of a New Monetary Policy Framework

The National Bank of Ethiopia has taken a number of policy measures aimed at reducing inflation in a significant and sustained manner.

As part of its primary goal of ensuring low and stable inflation, the NBE has been working towards the modernization of Ethiopia’s monetary policy framework over the past year. Several preparatory measures have been taken, in line with the NBE Medium-term Strategy Plan, to establish a supportive legal, institutional, and technical basis for meeting this objective. Most notably, the NBE’s mandate has been clearly defined to prioritize price stability relative to other goals. In addition, NBE’s technical capacity has been enhanced so as to adopt monetary policy tools that are better in line with modern central bank practices and more consistent with an increasingly dynamic and market-based financial system.

With the above preparatory work now largely complete, the NBE is today announcing the following set of measures to fully implement its new monetary policy framework.

First, NBE is moving to an interest-rate based monetary policy regime. Under the new policy framework, NBE will use its policy interest rate—to be known as the National Bank Rate or NBR—as the primary means of signaling its policy stance and influencing broader monetary and credit conditions. The NBR will be raised or lowered depending on prevailing inflationary and monetary conditions.
Second, the NBE is setting its initial policy interest rate at 15 percent. This policy rate takes into account current macroeconomic conditions, which are characterized by gradually declining (but still elevated) inflation, low base money growth, and a marked slowdown of bank credit growth over the past year. The policy rate is close to the rate at which banks currently lend to each other and is somewhat below commercial bank lending rates, which are in the range of 16-20 percent for most loan categories. The NBR is not meant to fix or set interest rates in the banking sector, which remain determined by the competitive interactions among banks and their clients. The minimum savings rate of 7 percent is not affected or currently being changed by the introduction of the NBE policy rate.
Third, the NBE will start conducting monetary policy related auctions every two weeks, whereby it will either withdraw or supply liquidity to the banking system depending on its assessment of the latest prevailing conditions. These auctions, known formally as Open Market Operations, will be used as the primary monetary policy instrument to ensure that interest rates in the interbank market—the operating target of monetary policy—remain close to the NBR. When excess liquidity in the banking system leads to significant downward deviations in the interbank market rate from the NBR, the OMO auctions will be used to withdraw excess liquidity from the banking system. Conversely, when the banking system as a whole is short of liquid funds resulting in significant upward deviations of the interbank market rate from the NBR, NBE will use OMO auctions to inject liquidity into the banking system. The first OMO auction is scheduled for July 11, 2024.
Fourth, NBE is also introducing an ‘Overnight Lending Facility’ and an ‘Overnight Deposit Facility’ for banks that might need to manage their liquidity positions over just a one-day time horizon. These facilities, known formally as Standing Facilities, will be offered at the NBR rate plus or minus 3 percent.
Fifth, NBE is soon introducing an electronic platform that will make it easier for banks to lend to and borrow from each other, thereby facilitating an active and functional ‘interbank money market’. The money market, once fully operationalized via a web-based online platform, will allow liquidity-surplus banks to provide funds to liquidity-short banks on a continuous basis, thereby allowing shortage or surplus conditions at specific banks to be addressed within the banking system and without the need for central bank intervention. It is expected that interest rates in the interbank market will align with the NBR but, should this not be the case, the NBE will intervene using OMO auctions (as outlined earlier) to ensure that the interbank interest rate converges to the NBR.
Sixth, as the shift to the new monetary policy framework is taking effect, the NBE will for a transitory period retain its past tools for managing liquidity. More specifically, quantitative measures for monetary management may be used as supplementary tools should the new monetary transmission mechanisms (whereby changes in the policy rate affect economy-wide credit conditions) turn out to be weaker or slower than initially expected. In addition, specific monetary policy instruments for addressing interest-free banking providers will be specified by the NBE in the near future.

Conclusion

The reforms being announced today represent a historic step in modernizing NBE’s monetary policy framework and aligning its policy tools with global best practices. The setting of a benchmark policy rate, the start of Open Market Operation auctions, the introduction of overnight facilities for banks, and the addition of a money market platform in the very near future are all important initiatives to support NBE in fulfilling the vital set responsibilities—most notably that of ensuring price stability—entrusted upon it per its own Strategy Plan and NBE Establishment Proclamation.

NBE believes that today’s package of measures will address some long-standing weaknesses in Ethiopia’s macroeconomic and banking environments. For the mutual benefit of all involved, NBE urges the cooperation of all stakeholders to ensure a successful implementation of this new monetary policy package.