In Ethiopia, central bank holds rate at 16% and aims to absorb liquidity

The National Bank of Ethiopia is holding its policy rate at 16% and plans to absorb excess liquidity through its market operations. Its statement of 3 November says the board approved the recommendations of the eighth meeting of the Monetary Policy Committee. The corridor around the rate remains set at plus or minus three points.

The decision comes as inflation remains above the single-digit target. The official statement puts it at 14.9% in September. The committee expects a slowdown but considers that it will remain in double digits over its six-month forecast horizon.

The framework adopted in July remains in place

Holding the rate extends the change begun in July. The central bank had then raised its rate from 15% to 16%, while removing the ceiling on bank credit growth. In his statement, Governor Eyob Tekalign explained that these measures should be read together, the rate increase accompanying the abandonment of an administrative constraint.

This reform therefore also changed the way financing is managed. The governor presented the shift from direct to indirect instruments as a change of tool, without any loosening of the monetary stance. The framework included additional reserves targeted at banks whose loan-to-deposit ratio would contribute to inflationary pressures.

The November statement confirms that this option is retained. The NBE intends to continue reviewing banks' ratios individually and to use additional reserves if credit expansion threatens the price trajectory. The framework thus combines the policy rate, banking supervision and liquidity management.

Gold operations feed liquidity

The latter features prominently in the recent diagnosis. Reserve money rose by 87.2% year on year in the first quarter of fiscal year 2026-2027. The NBE mainly attributes this expansion to its gold operations, which increase external reserves and are accompanied by injections of local currency into the banking system.

The central bank therefore plans to withdraw excess liquidity through its market operations. The committee is due to review the situation at the end of January 2027, or earlier if conditions require.