- Ethiopia raises credit growth ceiling to 24%
- Central bank keeps interest rate at 15%
ADDIS ABABA, ETHIOPIA – Ethiopia’s central bank raised the cap on credit growth to 24% while holding its benchmark interest rate steady at 15%, signalling cautious support for economic activity as inflation eases.
The National Bank of Ethiopia (NBE) announced the decision at its fourth Monetary Policy Committee (MPC) meeting on Sept. 25. Annual inflation has slowed from nearly 19% a year earlier to 13.6% in August, giving policymakers space to loosen slightly.
“The decision to maintain the interest rate at 15% while modestly raising the credit ceiling reflects our commitment to balance price stability with growth,” the MPC said in a statement released Monday. “We aim to provide financial institutions with sufficient flexibility to support lending, while safeguarding against inflationary pressures.”
Inflation and growth outlook
Food inflation, which has driven much of Ethiopia’s price surge in recent years, slowed sharply to 12.7%, easing pressure on households. Non-food inflation remained elevated at 15.1% due to supply bottlenecks and exchange rate pressures. On a monthly basis, consumer prices rose just 1.1%, suggesting immediate price pressures are moderating.
“We are encouraged by the decline, but inflation remains above our medium-term target of single digits,” the MPC noted.
Despite tight monetary conditions, economic activity has remained resilient. The NBE’s Composite Index of Economic Activity showed growth across agriculture, industrial exports – including gold and coffee – and services such as tourism and air transport.
Domestic credit climbed 14% year-on-year, with outstanding loans up 5.4% since June. Treasury bill yields on 91-day paper fell to 15% from 17.6% in June, while interbank rates averaged 13.7%, reflecting improved liquidity in the financial system.
Market reaction and policy stance
The partial relaxation of the credit growth ceiling has drawn attention from financiers who were expecting more aggressive loosening.
“The banks were anticipating a complete removal of the National Bank of Ethiopia’s credit cap, a move that many believed would unlock stronger liquidity flows and ease financing constraints across the economy,” said Global Financial Executive Milion Kibret.
Instead, the NBE opted for a partial adjustment, a decision Kibret described as prudent. “This move allows financial institutions more flexibility in lending, potentially stimulating sectors critical for recovery or expansion, while still maintaining oversight to prevent overheating,” he said.
The central bank stressed that its approach is part of a broader strategy of careful calibration amid domestic and external challenges.
“Measures launched in mid-2024 have improved foreign exchange access for exporters, while fiscal discipline, such as refraining from borrowing directly from the central bank, has supported disinflation,” Kibret remarked.
Markets expect tight monetary policy to remain in place in the short term, though gradual easing may follow if inflation continues to trend lower.
