The National Bank of Ethiopia Board approved a 100-basis-point increase in the policy rate to 16%, citing renewed inflationary pressure from fuel supply disruptions and the need to offset the removal of the credit cap, while retaining the plus-or-minus 3-percentage-point band. The rate had been held at 15% from September 2025 through March 2026. The central bank fully removed the credit cap as part of its transition to an interest rate-based framework and will apply targeted additional reserve requirements if bank credit expansion threatens the inflation path. Headline inflation rose to 13.4% in May and is expected to remain in double digits over the six-month forecast horizon, while real GDP growth is projected at 10.2% in FY 2025/26 and banks’ loan-to-deposit ratios have improved. The central bank also reduced its foreign exchange commission rate to 1.5% from 2.5% and lowered the goods-export surrender requirement to 30% from 50%, as the current account deficit narrowed to USD 1.8 billion in FY 2025/26. The Middle East conflict disrupted fuel supplies, lifted oil-related inflation risks and weakened the global outlook, although uncertainty may have eased somewhat. The National Bank of Ethiopia reaffirmed its tight stance and commitment to restoring single-digit inflation over the medium term.
National Bank of Ethiopia Raises Policy Rate by 100 Basis Points to 16%
The National Bank of Ethiopia raised its policy rate by 100 basis points to 16%, citing renewed inflationary pressure from fuel supply disruptions and the removal of the credit cap, while retaining the plus-or-minus 3-percentage-point band. It fully removed the credit cap, reduced the foreign exchange commission rate to 1.5% from 2.5%, and lowered the goods-export surrender requirement to 30% from 50%.