The National Bank of Ethiopia (NBE) has scrapped a credit cap it imposed on commercial banks, marking a shift to a market-based monetary policy system.
The decision was approved by the central bank’s Board of Directors following the seventh regular meeting of the Monetary Policy Committee held on Monday.
The credit cap had limited the amount by which individual commercial banks could expand their loan portfolios each year. It was introduced as a temporary measure to restrain excessive monetary expansion and ease inflationary pressures.
The cap was first applied in mid-2023, with the NBE seeking to contain skyrocketing inflation rates by limiting commercial banks’ annual credit growth to 14 percent. In December 2024, the threshold was loosened to 18 percent, and then again to 24 percent in September 2025.
The NBE statement noted that while inflation has eased in the wake of economic reforms and forex market liberalization initiated in mid-2024, ongoing pressure stemming from the conflict in the Middle East will likely translate to double-digit headline inflation figures over the coming six months.
The removal gives commercial banks greater discretion to determine the size and composition of their lending portfolios. However, the central bank introduced several accompanying measures intended to prevent a rapid increase in credit from adding to inflationary and foreign-exchange pressures.
The mechanism is expected to allow NBE to control lending risks at the level of individual institutions rather than imposing a uniform credit-growth ceiling across the banking industry.
“This gives the National Bank a precise instrument to act on individual banks, rather than the economy-wide constraint the credit cap once provided, should credit expansion in any part of the system begin to threaten the inflation outlook,” Eyob Tekalegn, NBE governor said.
The NBE further reduced the foreign exchange surrender requirement applicable to goods exporters from 50 percent to 30 percent. The measure is expected to allow exporters to retain a larger share of their foreign currency earnings, strengthen export competitiveness and support confidence in the foreign exchange market.
MG/as/APA