Addis Ababa:Maintaining a tight monetary policy stance is crucial for achieving Ethiopia's medium-term goal of single-digit inflation, as highlighted in a recent report by the Monetary Policy Committee (MPC) of the National Bank of Ethiopia (NBE).
According to Ethiopian News Agency, NBE Governor and MPC Chair Eyob Tekalign conveyed to journalists that the committee had reviewed several economic factors, including developments in the real, monetary, financial, fiscal, and external sectors, as well as global economic conditions and their implications for Ethiopia.
The MPC's assessment of recent macroeconomic trends and short-term economic forecasts led to the recommendation of monetary policy measures, which were approved by the Bank's Board. Eyob noted that although inflation is easing from a supply-driven peak, it remains significantly above the Bank's single-digit target, standing at 14.9 percent in September 2026.
Supply-side factors, particularly following the conflict in the Middle East, continue to be the main drivers of inflation. The report anticipates that headline inflation will remain in double digits over the next six months but is expected to decline gradually.
Despite inflation challenges, the Ethiopian economy is experiencing strong growth momentum. The NBE's Composite Indicators of Economic Activity have shown robust performance in the first quarter of the 2026/27 fiscal year, supported by ongoing macroeconomic reforms and improvements in various sectors such as electricity generation, industrial production, and tourism.
Annual reserve money growth accelerated to 87.2 percent in the first quarter of 2026/27, compared to 72.6 percent in the same period of the previous year, largely due to the Bank's gold operations that increased net foreign assets.
Interest rates on Treasury bills and the interbank money market have declined, remaining negative in real terms since May 2026. The banking sector continues to be stable, with low non-performing loans and adequate capital positions, while fiscal policy remains prudent, complementing the NBE's monetary policy stance.
The Monetary Policy Committee emphasized the importance of maintaining a tight monetary policy to achieve the NBE's inflation target. The Bank's Board approved key measures, including maintaining the policy interest rate at 16 percent, monitoring commercial banks' loan-to-deposit ratios, and effectively using indirect monetary policy instruments to manage liquidity.
