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In an effort to relieve inflation, the National Bank of Ethiopia (NBE) has introduced a 14 percent cap on credit growth for commercial banks. This policy is part of a broader strategy announced on August 11, 2023, which includes several measures to stabilize the economy. The goal is clear: to bring inflation down to below 20 percent by the end of the fiscal year in June 2024. It’s a significant move, seeking to ease the financial strain on citizens and guide the country towards economic stability.
In June 2024, the National Bank of Ethiopia (NBE) reported a significant decrease in the country’s inflation rate, which dropped to 19.9%, down from 29.3% 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% 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% compared to the previous year, potentially reducing the availability of loans for businesses and individuals. This has raised concerns about the broader economic impact and the ability of businesses to access necessary financing.
This is when the Ministry of Finance revealed its plans to reform the credit cap. In an interview with Sheger FM 102.1, Eyob Tekalign, State Minister of Finance, explained, “Reform efforts are underway. Given our planned success, it is essential to relieve the credit cap. The National Bank of Ethiopia will announce the changes, ensuring the reforms strike a balance between economic growth and inflation control.”
