The National Bank of Ethiopia (NBE) has decided to keep its benchmark policy rate unchanged at 16 percent, maintaining a tight monetary policy stance as inflation remains in double digits. This decision was made during the eighth regular meeting of the central bank's Monetary Policy Committee (MPC), held on November 3, 2026. The committee reviewed recent economic developments, inflation trends, and conditions in the monetary, financial, and fiscal sectors.
The NBE also retained its interest rate corridor at plus or minus 300 basis points around the policy rate. According to the MPC, recent monetary and financial conditions point to moderate looseness, while short-term inflation forecasts remain in double digits. This justified keeping the current policy direction unchanged. The central bank emphasized that maintaining tight monetary conditions is essential to achieving its medium-term goal of reducing inflation to single digits.
The MPC also signaled closer monitoring of commercial banks' loan-to-deposit ratios. It warned that additional targeted reserve requirements could be introduced if rapid credit expansion threatens the inflation outlook. The NBE will continue to rely on indirect monetary policy tools, particularly open market operations, to absorb excess liquidity from the financial system. These measures aim to restrain excessive money supply and credit growth, which can add to inflationary pressure.
The policy rate of 16 percent was set in July 2026, when the NBE raised it by one percentage point while removing its annual bank credit-growth cap. Since then, the MPC has been closely monitoring economic conditions. The committee is scheduled to meet again at the end of January 2027, though it may convene earlier if economic conditions require further policy action.
Inflation remains a significant challenge for Ethiopia's economy. The NBE's efforts to control inflation are crucial to maintaining macroeconomic stability. The central bank's decision to keep the policy rate unchanged reflects its commitment to addressing inflationary pressures. The MPC's close monitoring of commercial banks' loan-to-deposit ratios and potential introduction of targeted reserve requirements demonstrate its proactive approach.
The NBE's reliance on indirect monetary policy tools, such as open market operations, is a key strategy to manage excess liquidity and mitigate inflationary risks. By absorbing excess liquidity, the central bank aims to reduce the money supply and credit growth, which can contribute to inflation. This approach is part of the NBE's broader efforts to promote macroeconomic stability and achieve its inflation targets.
The MPC's next meeting in January 2027 will provide an opportunity to reassess economic conditions and adjust policy if necessary. The NBE's commitment to transparency and proactive policy management is essential to maintaining confidence in the economy. The central bank's actions will continue to play a critical role in shaping Ethiopia's economic outlook.
Key points
- The National Bank of Ethiopia maintains its policy rate at 16 percent to combat double-digit inflation.
- The central bank retains its interest rate corridor at plus or minus 300 basis points around the policy rate.
- The MPC will closely monitor commercial banks' loan-to-deposit ratios and may introduce targeted reserve requirements if needed.
