The National Bank of Ethiopia (NBE) has announced a new set of monetary policy measures aimed at reducing inflation in the country. The measures include:
- Setting a limited ceiling of domestic credit growth at 14 percent. This means that commercial banks can only lend out a maximum of 14 percent of their deposits to businesses and individuals. This is intended to slow down the growth of the money supply and help to control inflation.
- Limiting the amount of direct loans that the NBE can provide to the government. In the previous fiscal year, the government borrowed 30 billion birr from the NBE. In the current fiscal year, the government can only borrow up to 10 billion birr. This is intended to reduce the government’s budget deficit and help to control inflation.
- Increasing the interest rate that the NBE charges commercial banks for loans. This is intended to make it more expensive for banks to borrow money from the NBE, which will discourage them from lending out too much money.
- Changing the foreign currency transfer obligation of exporters. In the past, exporters were required to deposit 70 percent of their foreign exchange earnings with the NBE. Now, they will only be required to deposit 50 percent. This is intended to encourage exporters to keep more of their foreign exchange earnings in Ethiopia, which will help to strengthen the Ethiopian currency.
In addition to these monetary policy reforms, the NBE is also taking steps to address the underlying causes of inflation. These include:
- Supply-side measures to improve food production and productivity.
- Structural measures to improve transport networks, logistics systems, and the competitiveness of retail and wholesale trade.
- Fiscal policy as a supportive role alongside the supply-side and structural measures outlined above.
The Complete press release announced by the board of directors of the National bank of Ethiopia is available below.