Stabilizing inflation becomes a tough nut to crack

The Central Bank claims that it’s becoming difficult to apply strong fiscal and monetary administration to stabilize inflation.
The National Bank of Ethiopia (NBE) governor, Yinager Dessie, in his first quarter performance report to the House of Peoples’ Representative Plan Budget and Finance standing committee underlined that illegal high cash flow in the economy is increasing the inflation.
“Excess amount of cash flow in the market is one of the reasons for the increasing rate of inflation in the country,” said the governor.
“At the time when we introduced the new currency note, we set a maximum withdrawal and cash holding limit for both individuals and organizations. But it is not working as expected as a lot of currency has been injected in the economy in different ways,” Yinager explained.
Since the beginning of demonetization in mid-September 2020, NBE has been imposing different limits on deposits and withdrawals.
Speaking to the standing committee, Yinager indicated that, NBE’s method to control the growing inflation rate is by increasing or decreasing commercial banks reservation through the open market purchase or sales of government securities.
“NBE is working on effective ways of curbing and controlling illegal flow and base money circulating in the market and in commercial banks deposit. The cash deposit decrease has resulted in NBE buying t-bills with 20 percent of the cash to fulfill budget deficits and in minimizing unnecessary cash flow in the market,” the governor cited the measures taken.
“We need to apply strong fiscal and monetary administration to control the cash flow in the market,” said Yinager, adding, “We are trying our best but due to the current situation in the country it is becoming difficult to apply strong fiscal and monetary administration.”
“We have started applying new rule to make changes in controlling the base money in the market. NBE has been tracking investigations and evaluating the illegal actors through their storm activities of hoarding cash illegally,” the governor pointed out whilst indicating the issue needed collaboration among different authorities.
One of the new instruments that have been used is the implementation of a new directive that provides privilege for collaborators who inform illegal actors to the regulatory body.
The Governor said that as per the new directive, NBE has facilitated reward payouts for those who provide intel on the foul players, citing that rewards will be got off the property of the illegal actors.
Inflation is now becoming unendurable for the working class with food, housing, fuel, industrial input, and rent skyrocketing in price. In its recent report the Central Statistics Agency showed that Ethiopia’s inflation decreased in August falling to 32.5% year-on-year from 33.5% a month earlier with an overall month-on-month inflation falling to 2.9% from 3.1% in July. Although there is a decrease the percentages are small in comparison to the government targets to which the Ministry of Finance expects to cushion inflation to 11.9 percent until the end of this fiscal year which seems unrealistic.
“Although we are doing lots of efforts, in my opinion it is difficult to achieve our targets,” the governor vividly remarked, adding, “It is becoming difficult to control the increasing rate of inflation. After the government took stringent measures it has shown slight improvements but it is not as expected.”