NBE lifts credit cap, raises policy rate

By Muluken Yewondwossen

The National Bank of Ethiopia (NBE) has announced a series of major monetary policy decisions following the latest meeting of its Monetary Policy Committee (MPC), marking a significant step in the country’s transition to an interest rate-based policy framework.

The central bank has fully removed the temporary credit cap imposed on banks, stating that the measure had fulfilled its objective of supporting the shift toward indirect, market-based monetary policy instruments. The NBE emphasized that the decision does not signal a relaxation of its monetary policy stance and pledged to maintain tight monetary conditions through the effective use of indirect policy tools.

To offset the impact of lifting the credit cap and reaffirm its commitment to curbing inflation, the NBE Board approved a one percentage point increase in the policy interest rate, while keeping the existing ±3 percentage point policy corridor unchanged.

The central bank also introduced a targeted reserve requirement framework, allowing it to impose additional reserves on individual banks should excessive credit growth threaten the inflation outlook.

In a move aimed at lowering import costs and easing inflationary pressures, the NBE reduced its foreign exchange commission rate from 2.5 percent to 1.5 percent. The surrender requirement on export proceeds was likewise cut from 50 percent to 30 percent to enhance exporters’ competitiveness, deepen the foreign exchange market, and improve price discovery.

The MPC said its next meeting is scheduled for the end of September 2026, or earlier if economic conditions warrant.