Part one looked at how Ethiopia’s new money system is built. This part looks at time. The system works, but slowly, and almost everyone in the economy wants results now.

Imagine you need 10,000 birr today, but you will only have it next year. Someone lends it to you, and a year later you pay back 11,600. That extra 1,600 birr is the price you paid for not waiting.

That is what an interest rate is. In 1930, the American economist Irving Fisher summed it up in one phrase: interest is the price of impatience. The borrower pays it to have money now. The saver earns it for agreeing to wait.

For the past three years, Ethiopia did not let that price do its job. Instead, the National Bank of Ethiopia (NBE) used a credit cap, a hard limit on how fast banks could grow their lending. It did not matter how badly you wanted a loan or how much you were willing to pay. Once your bank hit its limit, you waited in line.

In July, the NBE removed that cap and raised its main interest rate, the National Bank Rate, from 15 to 16 percent. In plain terms, it stopped rationing money and started pricing it. Anyone who wants money now can get it, as long as they pay the price.

In part one of this series, Walking the Quantitative Tightrope, we looked at how the new system is built: the interest rate, the market where banks lend to each other, government borrowing through Treasury bills, a market-driven birr and the IMF program that backs it all. We asked whether all those pieces would hold together.

This piece asks a simpler question: will anyone give the system enough time to work?

Interest rates work like medicine, not a switch

When the NBE raises its rate, nothing changes overnight at the market. The effect travels slowly, step by step:

  • Within days: banks charge each other more to borrow.
  • Within weeks or months: banks pay savers more and charge borrowers more.
  • Within a few quarters: loans become expensive, so people and businesses borrow and spend less.
  • After a year or more: less spending means prices rise more slowly.

Even central banks with decades of experience expect this to take 12 to 24 months. The economist Milton Friedman described the delay as “long and variable”: it is long, and nobody knows exactly how long.

Here is Ethiopia’s problem. The system is younger than its own delay. The interest rate tool started in July 2024. The market where banks lend to each other opened in October 2024. The credit cap came off less than three months ago. The NBE is like a driver in a new car who does not yet know how hard the brakes are, or how long the car takes to stop.

Meanwhile, prices are rising again

While the medicine slowly takes effect, the illness is getting worse.

Inflation, the speed at which prices rise, fell to 9.7 percent in December 2025, the first single-digit reading in nearly a decade. Then it turned. It reached 13.4 percent in May, 13.9 percent in June and 15.3 percent in July: four monthly increases in a row. Non-food prices, such as fuel and transport, rose fastest, doubling from 7 percent in March to 14.8 percent in July.

Now look at what this means for an ordinary saver. This is the most important point in the article.

The NBE’s rate is 16 percent, but that is not what your bank pays you. Most banks still pay around 7 percent on an ordinary savings account. The NBE scrapped the official 7 percent minimum in December 2025 precisely so that deposit rates could rise when it tightens. Months later, for most savers, they have barely moved. That is the delay at work: the signal has reached the banks, but it has not reached the savings account.

Economists measure the reward for saving with the real interest rate: what your savings earn minus how fast prices rise. A saver earning 7 percent while prices rise 15.3 percent is not being rewarded for waiting. They are being charged for it. Leave 1,000 birr in the bank for a year and, after interest, it buys roughly 70 birr less than it did when you deposited it.

Even at the central bank’s level, the cushion is thin. When the NBE raised its rate in July, its policy rate sat about 2.6 points above inflation (16 minus 13.4). Against July’s 15.3 percent, that margin has shrunk to about 0.7.

So the saver already has every reason not to wait, and the central bank has very little room left to change their mind.

Four kinds of impatience

The household: Ethiopians remember 2022 and 2023, when inflation ran near 30 percent and money sitting in the bank lost well over a third of its value. The lesson people learned was simple: do not hold birr. Turn it into something else as fast as possible: dollars, gold, land, cement, a second house. Anything that keeps its value while you sleep.

That habit makes sense for each family. But when everyone does it at once, prices rise further, which is exactly what the NBE is trying to stop. The parallel market shows how strong the habit still is. Through August, the dollar traded roughly 10 to 20 percent higher on the street than at the banks. That gap is a rough measure of how many people still trust the dollar more than the birr.

The bank: For three years, banks were not allowed to lend as much as they wanted. The demand for loans did not go away. It waited. Now the limit is gone, and the IMF expects lending to grow by as much as 55.9 percent this fiscal year. A bank held back for three years does not walk. It runs. The NBE has a new tool to slow it down: it can force individual banks that lend too aggressively to keep more money locked up in reserve. But that tool only works if it is used early, before the risky loans are already made.

The government: Ethiopia has just finished an election. A new parliament is seated and a new five-year term has begun, with big growth targets. Governments are naturally impatient because they want results within their term, and a term is short compared with how long monetary policy takes to work. Borrowing costs have already been called too high for business, and some have pushed for a rate cut. So far, the government has behaved well: it has not borrowed from the central bank since the reforms began, and its deficit is under one percent of the economy.

The central bank itself: This is the least obvious one. A young central bank wants to prove its system works, so it is tempted to use whatever tool gets quick results. August showed this. Banks had so much spare birr that the rate they charged each other was stuck at the lowest level allowed, 13 percent, for two straight weeks. To soak up the extra birr, the NBE sold $500 million to banks in a special session announced just one day before. Banks paid for those dollars in birr, which pulled about 80 billion birr out of the system in a single day. Over the whole month, dollar sales removed roughly 120 billion birr.

It worked. Within days, rates rose off the floor. But selling dollars is not the proper tool for this job. Mature central banks manage spare cash by buying and selling government securities with banks. Ethiopia is still building those tools. The risk is that every time the quick fix works, there is less pressure to finish building the proper one.

Why impatience is so dangerous

Economists have studied this problem for decades. In 1977, Finn Kydland and Edward Prescott explained it like this. A government can always promise low inflation next year. But when next year comes, there is always a reason to break the promise: a little extra money now helps growth, wins votes or eases a crisis. People know this. So they do not believe the promise. They keep expecting high prices and act on that expectation, by raising their own prices and demanding higher wages, which makes inflation real. The work later won them a Nobel Prize, and it is the main reason central banks around the world are made independent.

The lesson is simple: trust is built by waiting. A central bank becomes believable only after people watch it, again and again, choose long-term stability over short-term relief, even when that choice hurts.

Ethiopia’s central bank has not had time to build that record yet. For now, the IMF program lends it credibility, the way a parent co-signs a first loan for someone with no credit history. But the IMF program will end. After that, the NBE has to stand on its own reputation, and that reputation is being built right now, in the exact months when prices are rising, growth matters politically and everyone wants results sooner.

That is the trap of the impatient economy. The system can only earn trust by being patient, and it is being tested at the moment when patience costs the most.

What patience looks like

Patience does not mean doing nothing. It means making choices that make waiting worthwhile for everyone else.

1. Act early, not late: If inflation keeps rising, one firm rate increase now is better than many small, hesitant ones later. A central bank that acts late teaches people to bet that it will back down.

2. Tell people what to expect: The NBE should publish where it expects inflation to be in one, two and three years, and what it will do if things go off track. A forecast gives people something to check, instead of only asking them to trust.

3. Make saving worth it: If people earn more on birr deposits than they lose to inflation, they will stop rushing into dollars and cement. That means letting higher rates reach savers, not only borrowers.

4. Slow the lending rush now: The NBE’s new tool for aggressive banks only works if it is used before the loans pile up, not after.

5. Build the proper tools: Dollar sales worked as a quick fix in August. They should buy time to build a proper market for government securities between banks and the central bank, not replace it.

6. Keep the government’s hands off the central bank: The first year of a new term is when big spending promises are made. It is also when it matters most that those promises are paid for by borrowing from the market, not from the central bank.

Slowly, the egg will walk

There is an Amharic proverb every Ethiopian child hears: Slowly, the egg will walk on its own legs. You cannot rush a chick out of its shell. Crack it early and you do not get the chick sooner. You lose it.

Ethiopia’s new money system is that egg. The structure is in place, but it is not ready to hatch. Households, banks, the government and even the central bank are all tempted to crack it open early to check whether it is working.

Fisher said interest is the price of impatience. Ethiopia is learning the other half of that lesson: trust is the reward for paying it. The economy wants results this quarter. The system can only deliver them over years. Whether the NBE can hold its nerve long enough will decide whether the tightrope walk from part one ends in applause or in a fall.