The National Bank of Ethiopia Launches New Monetary Policy Framework











July 9, 2024 | Addis Ababa, Ethiopia

In a significant move to stabilize the country’s economy, the National Bank of Ethiopia (NBE) has unveiled a comprehensive new monetary policy framework aimed at ensuring low and stable inflation. This initiative follows extensive preparatory work aligned with the NBE’s Medium-term Strategy Plan, which included defining the bank’s mandate to prioritize price stability and enhancing its technical capabilities to adopt modern monetary policy tools.

Key Measures Announced:

Interest-Rate Based Policy: NBE will now use an interest-rate based regime, with the newly introduced National Bank Rate (NBR) serving as the primary tool for signaling its policy stance. The initial NBR is set at 15 percent, reflective of current macroeconomic conditions.

Policy Rate Implementation: The NBR aims to influence broader monetary and credit conditions. It is set close to current interbank lending rates, with commercial bank lending rates ranging between 16-20 percent.

Open Market Operations (OMO): Starting July 11, 2024, the NBE will conduct bi-weekly OMO auctions to manage liquidity in the banking system, ensuring interbank market rates align with the NBR.

Standing Facilities: An Overnight Lending Facility and an Overnight Deposit Facility will be introduced, allowing banks to manage their liquidity over a one-day horizon at the NBR rate plus or minus 3 percent.

Electronic Interbank Money Market: A new electronic platform will facilitate continuous lending and borrowing among banks, enhancing liquidity management without central bank intervention.

Supplementary Tools: While transitioning, the NBE will retain quantitative measures as supplementary tools to ensure effective monetary management.

Conclusion:

These reforms mark a historic shift in Ethiopia’s monetary policy, aligning NBE’s practices with global standards. By establishing a benchmark policy rate and introducing various liquidity management tools, NBE aims to address long-standing macroeconomic and banking sector challenges, ensuring price stability and fostering economic growth.

The NBE calls for the cooperation of all stakeholders to ensure the successful implementation of these measures, benefiting the entire economy.