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Ethiopia’s Central Bank Holds Tight on Monetary Policy
Ethiopia’s central bank unexpectedly opted for a partial easing of its credit controls, lifting the ceiling on commercial bank loan portfolio growth to 24% from 18%—but stopping well short of the full removal that investors, exporters and commercial lenders had widely expected.
The announcement came late Monday from the Monetary Policy Committee (MPC) of the National Bank of Ethiopia (NBE) and immediately rippled through the financial sector. Bank treasurers and corporate borrowers, who had positioned for a broader liberalization, were forced to recalibrate their plans.
A First Big Test for the New Governor
The decision represents the first major policy signal from Governor Eyob Tekalign Tolina (PhD), who was appointed only weeks ago to succeed Mamo Mihretu. Eyob had previously expressed support for removing the credit cap altogether, feeding expectations of a sharp pivot toward liberalization and market-driven monetary policy.
Instead, the governor endorsed a cautious approach, saying through the MPC that the cap remains “a key tool for safeguarding financial stability and sustaining the momentum in reducing inflation.” Analysts say the move underscores the delicate balancing act Eyob faces: fostering growth while trying to keep prices in check.
Inflation Concerns Trump Liberalization Push
The credit ceiling was first imposed in 2022 under Mihretu to tackle double-digit inflation, which peaked above 30% year-on-year at its worst. Annual inflation has since eased to the low-teens, but the NBE remains wary of loosening policy too quickly.
Economists argue that lifting the cap entirely could have injected a surge of liquidity into the banking system, stoking price pressures just as the central bank is trying to consolidate gains against inflation.
Economic Sectors Feel the Pinch
For exporters, manufacturers, and large-scale agribusinesses, the cap’s continuation means ongoing constraints on access to working capital and expansion financing. These sectors, which earn crucial foreign currency inflows, have long argued that tight credit conditions hinder Ethiopia’s ability to improve its balance of payments and create jobs.
Local banks also face limits on loan portfolio growth, constraining their ability to expand lending even as deposit bases grow. Several bank executives told Bloomberg-style reporters that projects in manufacturing and construction may be delayed as firms struggle to secure funding.
Market Reaction and Outlook
While the 6-percentage-point increase offers modest relief, market analysts described the decision as “incremental” and “well short of the liberalization narrative” that many investors had anticipated.
The MPC hinted that it may “revisit the decision in forthcoming meetings,” offering a slim hope that a full removal of the cap could still materialize if inflation continues to moderate.
For now, Ethiopia’s monetary policy remains firmly on a cautious trajectory, signaling that Governor Eyob intends to prioritize price stability over an immediate shift toward market liberalization.
