Addis Ababa, Dec. 30, 2025 — Ethiopia’s central bank has scrapped the country’s long-standing 7% minimum savings deposit rate, a policy in place for decades, marking one of the most sweeping financial sector reforms in recent years as the National Bank of Ethiopia (NBE) moves toward a fully market-based interest-rate regime.

The National Bank’s Monetary Policy Committee (MPC) said the decision will allow interest rates to be determined purely by market demand and supply, replacing the previous framework where the minimum interest rate was legally fixed while banks could only negotiate higher rates with depositors.

The reform is intended to strengthen the interest-based monetary policy framework introduced in July 2024, enhance policy transmission, and make interest rates a more effective tool for managing liquidity, stabilizing inflation, and boosting savings competitiveness among banks.

“This historic shift allows banks and depositors to freely negotiate interest rates,” the MPC said, adding that the move is expected to deepen financial intermediation and improve efficiency in the banking sector.

Policy Tightening Continues

While liberalizing deposit rates, the committee maintained its tight monetary stance. With inflation moderating but still above target, the MPC said controlling liquidity remains critical.

As part of this effort, the central bank raised the monthly average reserve requirement that banks must hold at NBE to 10% from 2%, while keeping the daily minimum requirement at 5%. The measure comes amid rapid credit expansion and strong liquidity growth in the financial system.

The bank reiterated it will use all available policy tools to ensure price stability remains anchored, noting that tighter policy remains preferable to premature loosening.

Aimed at Stabilizing Prices and Encouraging Savings

NBE said the reform is designed to:

• Improve monetary policy effectiveness through flexible interest rates
• Help stabilize inflation by managing money supply via price of credit
• Encourage savings and strengthen banking competition

The policy change also aligns Ethiopia more closely with global best practice, shifting away from administrative rate-setting toward a market-responsive system.

Broader Economic Context

The move comes as Ethiopia’s economy posts strong growth and inflation continues to ease. However, liquidity expansion, rapid bank lending and rising money supply have emerged as risks, prompting tighter reserve controls and policy caution.

With deposit interest now market-driven, analysts expect increased competition among banks for deposits, potential differentiation in rates based on bank strength, and greater responsiveness of the financial system to NBE’s policy signals.

The central bank said it will continue to closely monitor macroeconomic developments and stands ready to adjust policy if price stability is threatened.

The MPC’s latest decisions signal a balancing act: maintaining tight control to contain inflation while accelerating structural reforms to modernize Ethiopia’s financial system and deepen market-based monetary management.