Ethiopia unveils interest-rate based monetary policy to combat inflation

ADDIS ABABA – Ethiopia has introduced a new interest-rate based monetary policy framework aimed at controlling inflation and improving monetary conditions, the National Bank of Ethiopia (NBE) announced.

In a press statement issued on Tuesday, the NBE highlighted the launch of this framework, which is designed to ensure low and stable inflation. The central bank has undertaken several preparatory measures to establish a supportive legal, institutional, and technical foundation for this policy.

The NBE has enhanced its technical capacity to adopt monetary policy tools that align with modern central bank practices and a dynamic, market-based financial system. The country is shifting to an interest-rate based monetary policy regime, where the interest rate will be adjusted based on prevailing inflationary and monetary conditions.

The bank has set its initial policy interest rate at 15%, close to the current interbank lending rates and somewhat below commercial bank lending rates, which range from 16 to 20%, the statement added.

The NBE will conduct monetary policy-related auctions every two weeks, utilizing these open market operations as the primary instrument to regulate interbank market interest rates.

Additionally, the NBE introduced an ‘Overnight Lending Facility’ and an ‘Overnight Deposit Facility’ to help banks manage their liquidity positions over short time horizons. During the transition to the new framework, the NBE will retain its previous liquidity management tools temporarily.

The central bank expressed confidence that this measure will address longstanding weaknesses in Ethiopia’s macro-economy and banking environment.

.BY MESERET BEHAILU

THE ETHIOPIAN HERALD THURSDAY 11 JULY 2024

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