The National Bank of Ethiopia (NBE) has unveiled a comprehensive new monetary policy framework aimed at ensuring low and stable inflation.
This initiative follows extensive preparatory work aligned with the NBE’s Medium-term Strategy Plan, which included defining the bank’s mandate to prioritize price stability and enhancing its technical capabilities to adopt modern monetary policy tool, the bank said in a statement.
The NEB said key measures namely Interest-Rate Based Policy based on which NBE will now use an interest-rate based regime, with the newly introduced National Bank Rate (NBR) serving as the primary tool for signaling its policy stance. The initial NBR is set at 15 percent, reflective of current macroeconomic conditions.
The second measure is the policy rate implementation which aims to influence broader monetary and credit conditions. It is set close to current interbank lending rates, with commercial bank lending rates aims and Open Market Operations (OMO): Starting July 11, 2024, the NBE will conduct bi-weekly OMO auctions to manage liquidity in the banking system, ensuring interbank market rates align with the NBR.
An Overnight Lending Facility and an Overnight Deposit Facility will be introduced, allowing banks to manage their liquidity over a one-day horizon at the NBR rate plus or minus 3 percent, the statement said.
These reforms mark a historic shift in Ethiopia’s monetary policy, aligning NBE’s practices with global standards.
By establishing a benchmark policy rate and introducing various liquidity management tools, NBE aims to address long-standing macroeconomic and banking sector challenges, ensuring price stability and fostering economic growth.
The NBE calls for the cooperation of all stakeholders to ensure the successful implementation of these measures, benefiting the entire economy.
MG/as/APA