NBE maintains tight monetary stance, raises reserve requirement and lifts minimum saving rate

Addis Ababa, December 30, 2025 (FMC) – The National Bank of Ethiopia (NBE) has decided to maintain its tight monetary policy stance, raise reserve requirements, and remove the minimum saving deposit rate as part of measures aimed at sustaining disinflation and safeguarding price stability, a press release issued from the Central Bank said today.

The decisions were made following the fifth meeting of the NBE Monetary Policy Committee (MPC), held on December 22, 2025, in accordance with the Bank’s mandate under the NBE Establishment Proclamation No. 1359/2025.

The Committee reviewed recent developments in the real sector, inflation, the external sector, monetary and financial conditions, fiscal performance, and the global economic environment before recommending policy actions, which were subsequently approved by the NBE Board.

The MPC noted that headline inflation declined to 10.9 percent in November 2025, continuing a downward trend and indicating progress toward the Bank’s objective of achieving single-digit inflation. Food inflation fell to 10.6 percent from 18.5 percent a year earlier, while non-food inflation declined to 11.4 percent. Month-on-month deflation of 1.4 percent in November was cited as evidence of easing price pressures. The Committee attributed the disinflation trend to the continued tight monetary stance, improved agricultural production, and gradual adjustments in administered prices.

On growth and economic activity, the Committee reported that Ethiopia’s economy maintained strong momentum, with real GDP growth reaching 9.2 percent in fiscal year 2024/25, above the eight-year average of 7.5 percent. Growth was supported by steady expansion in services, rising industrial output—particularly from mining and quarrying driven by gold production—and a gradual increase in agriculture’s contribution.

High-frequency indicators compiled by the NBE also pointed to robust activity across the economy, despite declines in some export items, imports of raw materials, and petroleum volumes compared to the same period last fiscal year.

The MPC observed that monetary aggregates expanded rapidly, with year-on-year growth in broad money and reserve money reaching 38.8 percent and 67.3 percent, respectively, by November 2025. Bank credit grew by 44.5 percent year-on-year, reflecting eased credit conditions and increased liquidity, partly driven by NBE’s gold-related foreign exchange accumulation. The Committee cautioned that the pace of monetary expansion represents a concerning trajectory going forward.

Regarding interest rates, the Committee noted that market rates remained positive in real terms, except for the saving rate. The weighted average yield on 91-day Treasury bills rose to 16.2 percent in November 2025, while the seven-day interbank rate stood at 17.3 percent, within the NBE’s interest rate corridor. Activity in the interbank money market continued to expand, with cumulative traded volumes reaching Birr 1.26 trillion since its launch in October 2024.

The banking sector was assessed as sound, with low non-performing loans and adequate capital, although some banks continued to face liquidity pressures due to high loan-to-deposit ratios. The introduction of the interbank money market and the NBE’s Standing Lending Facility was noted as helping to ease short-term liquidity challenges.

On fiscal developments, the Committee said fiscal policy remained prudent and aligned with the tight monetary stance. During the first five months of fiscal year 2025/26, the government refrained from borrowing from the NBE, instead financing its deficit through the Treasury bill market, mobilizing more than Birr 70 billion over the period.

The MPC also reported improved external sector performance, noting that Ethiopia’s balance of payments registered a surplus following comprehensive reforms in July 2024. Growth in exports, particularly gold and coffee, alongside rising remittances, services trade, and capital inflows, supported a current account surplus and contributed to international reserves reaching their highest level on record.

The global outlook, based on the IMF’s October 2025 projections, indicates a gradual slowdown in global growth to 3.2 percent in 2025 and 3.1 percent in 2026, while global inflation is expected to decline to 4.2 percent in 2025 and 3.7 percent in 2026.

Based on its assessment, the MPC agreed that the tight monetary policy stance remains essential and should be maintained or strengthened until single-digit inflation is firmly achieved. Accordingly, the Board decided to keep the National Bank Rate at 15 percent and leave the rates on the Standing Deposit Facility and Standing Lending Facility unchanged.

The Board also approved maintaining the credit cap at 24 percent year-on-year growth until the next MPC meeting, citing rapid credit expansion, the need to strengthen monetary policy transmission, and the importance of managing liquidity in a gradual and orderly manner.

In response to excess liquidity and rapid money supply growth, the MPC further recommended, and the Board approved, raising the reserve requirement ratio to 10 percent on a monthly average basis, while keeping the daily requirement at 5 percent. Banks will be given three to six months to meet the new requirement.

In addition, the Board approved the removal of the minimum saving deposit rate, allowing deposit rates to be determined through negotiation between depositors and financial institutions, as part of efforts to enhance the effectiveness of the NBE’s price-based monetary policy framework.

The Committee stated that the NBE will continue to deploy available policy instruments whenever its primary objective of price stability is deemed to be at risk.

The next MPC meeting is scheduled for the end of March 2026, or earlier if circumstances warrant, NBE’s press release confirmed.