National Bank of Ethiopia  Holds Interest Rate At 15 Percent

By: Getahun Tsegaye
Staff Reporter 

Addis Ababa, Ethiopia – The National Bank of Ethiopia (NBE) has announced today that its Monetary Policy Committee (MPC) has concluded its third meeting, deciding to maintain the National Bank Interest Rate at 15%. This move reflects the NBE’s continued commitment to a “prudent policy stance” aimed at curbing inflation, a strategy the committee describes as “indispensable” to meeting headline inflation targets.

Inflation indicators show encouraging signs. Headline inflation remained steady at 14.4% in both April and May 2025. Notably, food inflation dropped to 12.1%, a sharp decline from 25.6% a year earlier. While non-food inflation stands at 17.8%, which is still lower than last year, the NBE observed a slight recent uptick, attributing it in part to exchange rate pass-through effects. However, the committee noted that month-on-month inflation rates have been “subdued,” suggesting a softening in new price pressures. Still, the MPC stressed that inflation must continue to decline, acknowledging the “elevated cost of living” as a pressing macroeconomic concern.

The NBE also reported strong momentum in Ethiopia’s economic growth, as reflected in its Composite Index of Economic Activity (CIEA). Growth is being driven across multiple sectors: agriculture is benefitting from supply-side initiatives; industry is gaining traction through improved capacity utilization, supported by easing foreign exchange constraints; and services are expanding, especially in air transport and tourism. Export performance remains robust, with coffee and gold exports showing particularly strong gains.

On the monetary and financial front, the NBE noted an uptick in monetary aggregates, attributed to moderately eased credit conditions and supportive fiscal and external developments. Broad money growth is projected at 23.3% by the end of June 2025, and commercial bank loan stock is expected to rise by 18.1%. Gross bank reserves have seen a significant boost, largely due to “substantial gold-related foreign exchange accumulation.” The NBE emphasized that this increase has been carefully managed to prevent overheating, maintaining its “still-binding cap on overall lending growth.” The banking sector remains “safe and sound,” supported by low levels of non-performing loans and strong capital buffers. Additionally, the introduction of an inter-bank money market and a Standing Lending Facility is helping banks navigate short-term liquidity needs.

The NBE commended the government’s fiscal policy, highlighting its alignment with the central bank’s tight monetary approach. Importantly, the government has “eliminated borrowing from the central bank” for the 2024/25 fiscal year—a move the NBE described as “highly supportive” of monetary policy goals.

Ethiopia’s external sector performance has also seen significant improvement following sweeping reforms introduced in July 2024. These include record growth in goods exports, moderate gains in net services trade and remittances, and sharply higher capital inflows. At the same time, reduced import growth—partly due to falling global commodity prices and the effects of exchange rate reforms—has led to a “significant drop in the current account deficit” and a “near three-fold jump in NBE’s FX reserve position.”

In addition to holding the policy rate, the MPC extended the 18% cap on bank credit growth until its next meeting in September 2025, aiming to consolidate recent inflationary gains. In a significant shift toward more market-driven tools, the committee also repealed the directive requiring commercial banks to purchase Treasury Bonds. The NBE explained that this move is now feasible due to the government’s improved revenue performance and its ability to finance the budget deficit through concessional external loans and domestic market-based instruments.

While a revision of the credit growth cap is anticipated in September, the NBE reaffirmed its readiness to deploy a “full range of market-based monetary policy tools”—including adjustments to the policy rate, Open Market Operations, foreign exchange interventions, and reserve requirement changes—should the need arise.

The next MPC meeting is scheduled for the end of September 2025, or earlier if economic conditions demand it.

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