In the upcoming fiscal year, the National Bank of Ethiopia (NBE) is expected to revise its policy rate, commonly called the National Bank Rate (NBR). The current rate, set at 15 percent, was established at the start of the fiscal year and is part of the NBE’s shift to an interest-rate-based monetary policy framework. This transition represents a significant step toward aligning with global best practices in monetary policy, aimed at improving the effectiveness of policy communication and influencing the broader economic landscape, particularly in monetary and credit markets.
The NBE’s decision to adopt this framework follows a period of gradually declining inflation, slow growth in base money, and a notable slowdown in bank credit growth over the past year. This new approach replaces the previous credit ceiling method, intended as a temporary measure. Under the revised framework, interest rates for overnight lending and deposit facilities between the central bank and commercial banks will be based on the NBE policy rate, with an adjustment range of plus or minus three basis points.
Furthermore, the NBE has announced the creation of a new monetary policy committee, which will be responsible for developing and recommending monetary policy proposals, including the determination of the NBR. The committee, comprising seven members, will meet regularly and will be chaired by the NBE Governor, with a vice governor serving as the deputy chair.
The government has assured foreign partners that the policy rate will be reviewed as the country works towards achieving positive real interest rates by the first quarter of 2025, in line with commitments made in the International Monetary Fund’s (IMF) Extended Credit Facility review.
Source: Capital Ethiopia
