The National Bank of Ethiopia (NBE) is expected to revise its policy rate, or National Bank Rate (NBR), early next year. Set at 15% at the start of this fiscal year, the NBR reflects the NBE’s shift to an interest-rate-based monetary policy framework, replacing the previous credit ceiling approach.
This change aims to better align with global best practices and improve how monetary policy influences the economy. The NBR will guide overnight lending rates between the central bank and commercial banks, with adjustments of up to three basis points.
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The revision considers Ethiopia’s macroeconomic trends, including declining inflation, reduced growth in base money, and slower bank credit expansion. A new monetary policy committee, established under a recent proclamation, will recommend updates to the NBR.
The committee will include seven members, two of whom are external experts, and will be chaired by the NBE Governor. While Governor Mamo Mihretu has not disclosed specific plans for the NBR update, the government has committed to raising the rate to positive real terms by early 2025 as part of its reform agenda under the IMF’s Extended Credit Facility.
This framework underscores Ethiopia’s commitment to modernizing its monetary policy, with the NBR serving as the foundation for lending rates between the central bank, government, and financial institutions.
Source: Capital Ethiopia
