The National Bank of Ethiopia (NBE) has officially lifted its long-standing grip on interest rates, allowing banks to price money based on market forces for the first time in decades.
The shift comes through the Interest Rates (As Amended) Directive No. NBE/INT/13/2026, signed by Governor Eyob Tekalign (PhD) and effective January 9, 2026.
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In simple terms, the central bank has stepped back from setting interest rates and is letting banks decide for themselves, while still keeping a close watch on how the system behaves.
For years, Ethiopia’s banks operated under centrally determined interest rate rules. That model is now history. The new directive repeals all previous interest rate regulations and applies to all NBE-licensed banks operating in the country.
Under the new framework, banks are free to set interest rates on demand, savings, and time deposits. Rates must be applied fairly, meaning customers in the same category must be treated equally.
Banks are also required to base their decisions on clear, written criteria. Importantly, customers who already hold time deposits will not see their agreed rates change overnight, the new pricing rules apply only going forward.
The same market logic now applies to lending. Banks can independently determine interest rates on loans and advances, reflecting risk, cost of funds, and market conditions.
Even the inter-bank lending market, where banks lend to one another, will now operate through direct negotiation rather than preset rules. However, the NBE will continue to set rates for its own facilities, including loans and standing facilities provided to commercial banks.
While the move gives banks more freedom, it does not mean less oversight. The central bank has paired deregulation with strong governance and transparency requirements. Each bank’s Board of Directors must formally approve deposit and lending rates based on clear criteria.
Once rates are set or adjusted, banks must notify the NBE within five working days. They must also submit monthly reports showing actual weighted average lending and deposit rates, broken down by sector.
Existing loan agreements are largely protected. Unless a contract clearly states otherwise, new lending rates will not apply to loans issued before January 9, 2026. This provision is meant to prevent sudden shocks for borrowers already in the system.
At a deeper level, the directive signals Ethiopia’s growing confidence in market mechanisms. It aligns with broader financial sector reforms aimed at improving efficiency, attracting investment, and strengthening monetary policy transmission.
For customers, businesses, and investors, the real test will be how banks compete, price risk, and innovate in this newly opened landscape.
One thing is clear: the era of fixed interest rates in Ethiopia is officially over.
