Ethiopia’s Inflation Declines as Exports and Foreign Exchange Flows Increase











Addis Ababa, Ethiopia – Ethiopia’s economic landscape is undergoing significant changes, with inflation rates reaching a five-year low, exports witnessing record growth, and foreign exchange availability improving. The latest data from the National Bank of Ethiopia (NBE) and the Ethiopian Statistical Service indicate a shift in key economic indicators, reflecting ongoing policy adjustments and market responses.

Inflation Declines to 15.5%, Lowest in Five Years

Ethiopia’s inflation rate dropped to 15.5% in January 2025, down from 29.4% in January 2024, representing a 13.9 percentage point decline. This marks the lowest inflation level recorded in the last five years.

The reduction in inflation is attributed to a combination of monetary policy measures, stabilized supply chains, and improved domestic production.

Food inflation, which has historically been a major contributor to overall inflation, fell significantly from 32.3% in January 2024 to 15.7% in January 2025—a decline of 16.6 percentage points.

Non-food inflation also saw a 10.2 percentage point reduction, dropping from 25.3% to 15.1% over the same period.

These trends suggest a decrease in consumer price pressures, particularly in essential goods. However, the sustainability of this decline will depend on factors such as global commodity prices, agricultural performance, and policy execution in the coming months.

Exports Experience Strong Growth, Imports Adjust

Ethiopia’s exports have experienced a historic surge, reaching $3.27 billion in the July–December 2024 period, more than doubling from $1.60 billion in the same period of 2023—an increase of 104.3%.

This growth is largely driven by gold and coffee exports, which have seen substantial gains:

Gold exports rose from $161 million in July–December 2023 to $1.36 billion in July–December 2024, an increase of 735.2%. The sharp rise reflects improved gold production, higher global prices, and stronger export facilitation policies.

Coffee exports, a key sector for Ethiopia, grew by 60%, increasing from $574 million to $918 million over the same period. The rise in coffee exports aligns with improved international demand and government incentives for agribusiness exports.

Meanwhile, total imports declined by 4%, falling from $8.99 billion in July–December 2023 to $8.63 billion in July–December 2024. This decline in imports is partly due to foreign exchange constraints, local production increases, and government policies aimed at reducing dependency on imported goods.

Foreign Exchange Market Strengthens as Remittances and FX Sales Increase

Remittance inflows and foreign exchange sales by banks have both increased, signaling greater foreign currency availability in the market.

Private individual remittances through banks grew by 23.3%, reaching $1.83 billion in July–December 2024, up from $1.48 billion in the same period of 2023. This increase may be linked to improved financial sector regulations, diaspora engagement programs, and higher trust in formal banking channels.

Foreign exchange (FX) sales by banks have risen significantly, with the daily average FX sales increasing from $22 million in August 2024 to $42.9 million in January 2025. This sharp rise suggests an easing of FX shortages, which could help businesses access foreign currency for imports and investment.

While these developments are positive, analysts note that sustained foreign exchange stability will depend on factors such as export performance, foreign direct investment (FDI) inflows, and government reserve policies.

Financial Market Adjustments: Interest Rates Align with Market Trends

The Ethiopian financial sector is also undergoing adjustments, with key interest rates moving closer to market levels.

Treasury bill (T-bill) rates for 364-day securities increased from 10% to 15.7%, reflecting growing investor demand and alignment with the NBE’s policy rate of 15%.

Interbank money market rates have risen, with the weighted average interest rate reaching 17.7%, surpassing the NBE’s 15% policy rate. The lowest interbank lending rate stood at 17.0%, indicating increased liquidity competition among financial institutions.

These interest rate adjustments suggest a shift toward a more market-driven financial system, potentially enhancing credit availability and overall economic stability.

Economic Outlook and Key Considerations

The current economic trends suggest a shift in Ethiopia’s economic landscape, with declining inflation, rising exports, and growing foreign exchange availability. However, several challenges remain:

Sustaining Inflation Control – While inflation has declined, external shocks such as global food prices and fuel costs could influence future inflation trends.

Maintaining Export Growth – The sharp increase in exports, particularly in gold and coffee, needs to be sustained through policy support and market diversification.

Foreign Exchange Stability – The rise in remittances and FX sales is promising, but long-term stability depends on expanding foreign investment and increasing reserves.

Interest Rate Policy Adjustments – As interest rates align with market conditions, financial sector reforms may be needed to support businesses and consumers.

As Ethiopia navigates these economic adjustments, policymakers, investors, and businesses will be monitoring developments closely to assess long-term stability and growth potential.











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