The National Bank of Ethiopia (NBE) has introduced a 14 percent cap on credit growth for commercial banks as part of an effort to ease inflation, APA can report from Addis Ababa on Tuesday.
The bank in a statement said on Tuesday that the credit cap is part of a broader strategy announced on August 11, 2023, which includes several measures to stabilize the economy.
The bank said with the credit cap, the government aims at reducing inflation down to below 20 percent by the end of this Ethiopian fiscal year.
The bank said it is a significant move, seeking to ease the financial strain on citizens and guide the country towards economic stability.
In June 2024, the NBE reported a significant decrease in the country’s inflation rate, which dropped to 19.9 percent, down from 29.3 percent in the same month the previous year.
This marks a 9.4 percentage point reduction year-on-year, indicating progress in controlling inflation levels within the Ethiopian economy.
The NBE attributed this decline in inflation to effective monetary policy measures and supply-side initiatives implemented over the past year.
However, businesses and banks have criticized the 14 percent credit cap, arguing that it discourages investment and has led to a liquidity crunch within commercial banks.
The cap restricts these banks from increasing their loan portfolios by more than 14 percent compared to the previous year, potentially reducing the availability of loans for businesses and individuals.
MG/as/APA