Ethiopia’s central bank kept its benchmark interest rate unchanged and modestly raised its credit growth target after a policy review that pointed to easing inflation but lingering risks.
The Monetary Policy Committee (MPC) of the National Bank of Ethiopia (NBE), meeting on Sept. 25, said it would maintain the National Bank Rate at 15% and leave deposit, lending facility and reserve requirement rates unchanged. The committee raised the banking system’s annual credit growth ceiling to 24% from 18%, stopping short of a full removal of the cap that had been expected this month.
Headline inflation eased to 13.6% in August, down from 18.8% a year earlier, helped by tight monetary policy, stronger farm output and price adjustments, according to the MPC. Food inflation slowed to 12.7%, while non-food inflation edged up to 15.1%, reflecting exchange-rate effects. Month-on-month inflation fell to 1.1%.
The committee said inflation remains above the central bank’s medium-term goal of single digits and warned that policy should stay disinflationary until further improvement.
Broad money grew 23.1% year-on-year in August, while base money surged 70.7%, driven in part by foreign exchange accumulation through gold purchases. Domestic credit expanded 14%, while outstanding banking system loans were up 5.4% compared to June.
Liquidity conditions have improved, pushing short-term interest rates lower. Yields on 91-day Treasury bills fell to 15.0% in August from 17.6% in June. Interbank rates averaged 13.7%, staying within the NBE’s 15% ±3 percentage point corridor. Interbank transaction volumes reached 945.1 billion birr as of October 2024.
The banking sector remained “safe and sound” with low non-performing loans and adequate capital, though some institutions faced liquidity strains from high loan-to-deposit ratios, the MPC said. It credited the interbank money market and a standing lending facility with easing pressures.
The committee said fiscal policy remained disciplined, with no central bank financing in the first two months of the 2025/26 fiscal year. The external sector benefited from reforms introduced in July 2024, with stronger exports of gold and coffee, higher remittances and a current account surplus.
The MPC cited improved global growth prospects, with the IMF projecting world output to rise 3.0% in 2025 and 3.1% in 2026, alongside moderating inflation. But it warned that tariff shocks could raise U.S. prices in late 2025.
The committee said it will continue using market-based tools including the policy rate, open market operations, foreign exchange interventions and reserve requirement changes “as needed.”
Its next policy meeting is scheduled for December.
