Addis Ababa, September 29, 2025 (FMC) — The National Bank of Ethiopia (NBE) has maintained a tight monetary policy stance while raising the credit growth target for the fiscal year 2025/26, according to a press release issued by the central bank on Monday. The announcement follows the fourth meeting of the NBE’s Monetary Policy Committee (MPC), held on September 25, 2025.
The Committee, responsible for recommending monetary policies for endorsement by the NBE Board, reviews Ethiopia’s economic performance, inflation trends, monetary and financial developments, fiscal and external sector conditions, and global factors affecting the economy.
The press release noted that inflation in August 2025 eased to 13.6 percent, reflecting a continued downward trend supported by the Bank’s tight monetary stance, improved agricultural output, and gradual adjustments in administered prices.
Food inflation dropped to 12.7 percent from 18.8 percent a year earlier, while non-food inflation slightly increased to 15.1 percent, partly due to exchange rate pass-through effects. Month-on-month inflation slowed to 1.1 percent, indicating moderate new price pressures.
Economic activity remained strong, underpinned by agricultural supply-side initiatives, growth in key industrial sectors aided by easing foreign exchange constraints, and robust exports of coffee, gold, and services such as air transport and tourism.
Some declines were observed in imports of semi-finished and consumer goods compared with the previous fiscal year. Monetary aggregates expanded, reflecting moderate easing of credit policies alongside fiscal and external developments.
Year-on-year growth in broad money and reserve money stood at 23.1 percent and 70.7 percent, respectively, while domestic credit rose 14 percent by the end of August 2025. Banking system loans increased by 5.4 percent since June, and the growth in reserve money reflects NBE’s gold-related foreign exchange accumulation and the corresponding injection of local currency liquidity, though the credit cap limited broad money expansion.
Short-term market interest rates have been declining but remain close to the policy rate and positive in real terms, an encouraging sign for money market development. Weighted average yields on 91-day Treasury Bills fell to 15 percent in August from 17.6 percent in June, while interbank rates improved to 13.7 percent, remaining within NBE’s interest rate corridor of 15 percent plus or minus three percentage points. Interbank transaction volumes reached Birr 945.1 billion as of October 2024.
The banking sector remained sound, with low non-performing loans and adequate capital, although certain segments faced liquidity pressures due to high loan-to-deposit ratios. The interbank money market and NBE’s Standing Lending Facility have helped ease these short-term challenges.
Fiscal policy during the review period was prudent and disciplined, with the government refraining from borrowing from NBE in the first two months of FY 2025/26, supporting the Bank’s tight stance. The external sector continued strong performance following the comprehensive reform of July 2024, with growth in goods exports, remittances, and services helping to sustain current account and overall balance of payments surpluses.
Globally, the IMF projects GDP growth of 3.0 percent in 2025 and 3.1 percent in 2026, slightly higher than previous forecasts, reflecting stronger-than-expected front-loading in anticipation of tariffs, lower effective U.S. tariffs, improved financial conditions, and fiscal expansion in major economies. Global inflation is expected to continue declining, with headline rates projected at 4.2 percent in 2025 and 3.6 percent in 2026. Tariffs may gradually influence U.S. consumer prices in the second half of 2025.
While the Committee welcomed the progress in reducing inflation, it noted that the rate remains above the medium-term target of single-digit inflation. The MPC emphasized that a disinflationary monetary policy stance remains appropriate and that careful calibration of the credit ceiling is necessary to avoid risks to financial stability.
The press release stated that the NBE Board approved maintaining the National Bank Rate at 15 percent, keeping existing rates for the Standing Deposit and Lending Facilities and reserve requirements unchanged, and raising the credit growth target for FY 2025/26 from 18 percent to 24 percent while retaining a credit ceiling to ensure prudent expansion.
The Bank also confirmed its commitment to using the full range of market-based monetary policy tools—including policy rates, open market operations, foreign exchange interventions, and reserve adjustments—applied individually or in combination as needed. The MPC scheduled its next meeting for December 2025.