What changed
The National Bank of Ethiopia kept its National Bank Rate at 16%, retained the interest-rate corridor at plus or minus 300 basis points, and continued targeted reserve requirements for banks. Governor Eyob Tekalign said the banking sector remained safe, with low non-performing loans and adequate capital, as first-quarter net deposits rose 85.4% and outstanding credit grew 42.6%.
Why it matters
Ethiopia is seeing rapid expansion in bank liquidity while the central bank is keeping policy tight. Reserve money grew 87.2% year on year, helped by gold operations that increased foreign assets and injected local-currency liquidity into the banking system. Broad money growth also accelerated to 40.2%, above projected nominal GDP growth.
That combination leaves the bank balancing two competing pressures: supporting strong economic momentum in 2026/27 while preventing excess liquidity from feeding inflation. September inflation eased to 14.9%, but it remained above the central bank’s single-digit target. Food inflation edged down from 15.1% in June to 14.8% in September, while non-food inflation climbed from 12.2% to 15.1%.
The government’s financing discipline gives the policy stance some support. It took no direct advance from the NBE during the first quarter, extending a period of more than 27 months without such financing. Gold and coffee exports, private transfers and capital inflows also helped preserve a balance-of-payments surplus despite a wider trade deficit.
The near-term outlook is therefore stronger growth with inflation still uncomfortably high. If supply pressures, including energy costs, ease, price growth could continue falling; if they persist, the NBE’s 16% rate and targeted reserve measures may remain necessary even as banks keep gathering deposits and expanding credit.
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