The National Bank of Ethiopia has decided to keep the country’s main interest rate at 15% as they believe it is necessary to help lower the country’s high inflation rate and manage expectations about the value of Ethiopia’s currency.

Details of The New Development Now, Ethiopia’s inflation rate is high, standing at 16.9% overall with food prices going up by 18.5%, and non-food items increasing by 14.4%.
Credit (loans given out by banks) on their end grew by 19%, while the amount of money in the economy increased by 20% (broad money) and 17% (base money) as of November 2024.
Then in December, Ethiopia’s parliament decided to let foreign banks operate in the country in a bid to create competition, which could improve the banking services and benefit customers.
After a Monetary Policy Committee (MPC) meeting on December 31, 2024, the bank explained that two things make them careful about making changes to monetary policies: – The government plans to ease its spending soon. – The idea that there will likely be more foreign money flowing into the economy.
FFollowing from this, the MPC did not change the rates for deposits, loans, or the required amount of money banks must hold in reserves. However, they adjusted the credit growth target from 14% to 18%, meaning banks are now allowed to give out more loans.
Ethiopia’s Banking System: Ethiopia has more than 30 local banks with a total capital of $2.4 billion. The state-owned Commercial Bank of Ethiopia (CBE) is the biggest, holding 21.5% of all the banks’ combined capital. Despite being the largest economy in Eastern Africa, Ethiopia’s banking system is not very competitive, which makes services less efficient.
What You Should Know
Allowing foreign banks is part of Ethiopia’s effort to liberalize its economy. The government has already made changes in other areas, like the telecom sector, which allowed Kenya’s Safaricom to enter the market as Ethiopia’s first foreign telecom company.
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