NBE Sets Policy Rate at 15% in Shift to Interest-Rate-Based Monetary Policy

In a significant move, the National Bank of Ethiopia (NBE) has adopted an interest-rate-based monetary policy framework, aligning with international best practices. This change comes as the central bank transitions away from the previous credit ceiling measure, which was intended as a temporary measure.

According to Mamo Esmelealem Mihretu, the governor of the NBE, the new policy rate has been set at 15%. This rate, he says, reflects the current economic conditions, such as declining inflation, low growth in base money, and the low growth rate of new loans disbursed by banks in the past year.

Notably, the governor emphasized that the new policy rate is independent of the existing seven percent minimum savings rate or bank lending rates. Instead, the NBE policy rate, plus or minus three basis points, will serve as the basis for overnight lending or deposit facilities between the central bank and commercial banks.

This shift to an interest-rate-based monetary policy framework marks a significant step forward for the NBE, as it aims to better signal its policy stance and influence broader monetary and credit conditions in the economy.

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