Ethiopia’s Central Bank Maintains 15% Policy Rate, Slightly Uncaps Credit

Signaling another year characterized by taming the double-digit inflationary beast, Ethiopia’s central bank has widened the annual credit growth cap by a timid 4%. The National Bank of Ethiopia ‘s (NBE) freshly established Monetary Policy Committee (MPC) announced its inaugural decisions in the final hours of 2024.

While the Committee decided to maintain the National Bank Policy Rate of 15%, it has allowed bank’s annual credit growth to perk up to 18% after nearly a year and half of capping it at 14%. Total loans by the banking industry were almost exactly in line with NBE’s target in 2024 with a growth of 14.5% to reach nearly 1.5 trillion birr. NBE’s tightened monetary policy has contributed to a five-year low inflation rate of 16.9% as of November. Nonetheless, the banking industry has experienced significant liquidity strains reflected in high loan to deposit ratio’s and limited excess reserves.

“Unusually tight liquidity and credit conditions,” and “the sharp real decline in monetary aggregates relative to nominal GDP,” have led the Committee to maintain a prudent policy stance.

Establishment of the Committee was first signaled by the central bank in its three year strategic plan unveiled last year. Price stability continues to be the priority target of the NBE as it looks to bring it down to single digit figures early next year.