𝗡𝗕𝗘 𝗦𝗰𝗿𝗮𝗽𝘀 𝗦𝗮𝘃𝗶𝗻𝗴𝘀 𝗥𝗮𝘁𝗲 𝗙𝗹𝗼𝗼𝗿, 𝗥𝗮𝗶𝘀𝗲𝘀 𝗥𝗲𝘀𝗲𝗿𝘃𝗲𝘀 𝗪𝗵𝗶𝗹𝗲 𝗛𝗼𝗹𝗱𝗶𝗻𝗴 𝗖𝗿𝗲𝗱𝗶𝘁 𝗖𝗮𝗽

Ethiopia's central bank left its controversial credit growth ceiling unchanged at 24% on Tuesday, citing a concerning surge in money supply that has breached the limit despite tight monetary policy intended to steer inflation into single digits.

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The National Bank of Ethiopia's Monetary Policy Committee (MPC) maintained the cap on annual credit expansion just three months after setting it at that level, warning that broad money supply growth had reached a near-record 38.8% year-on-year by November 2025, far outpacing nominal GDP growth and threatening the disinflation process. Outstanding credit growth hit 44.5%, nearly double the prescribed limit.

"While the committee agreed that this policy stance should remain in place until the envisioned target of reaching single-digit inflation is adequately realized, the data shows the transmission mechanism remains weak," the MPC said in its fifth meeting statement, released following board approval.

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The decision underscores the delicate balancing act facing Governor Eyob Tekalign(PhD), who in September had pledged the 24% ceiling would release billions of Birr into the economy while vowing to keep inflation then at 13.6%, in check. November's headline rate fell to 10.9%, a substantial improvement but still above the bank's single-digit target.

In a notable shift from earlier concerns about liquidity shortages, the MPC's December assessment revealed the banking system is now flush with cash. The committee attributed the excess to gold-related foreign exchange accumulation, which has injected "a substantial liquidity improvement" into the system. To mop it up, the central bank raised the reserve requirement ratio to 10% on a monthly average basis, while keeping the daily requirement at 5%. Banks will have three to six months to comply.

The MPC also moved further toward interest rate liberalization, eliminating the minimum deposit interest rate that had guaranteed savers a floor on returns. The rate had remained one of the last administered prices in Ethiopia's evolving monetary framework, and its removal marks another step in the NBE's July 2024 transition to a price-based policy regime.

"Removing the current minimum saving rate shall enhance saving from the general public and maintain policy consistency," the committee argued, believing market negotiation between depositors and banks will set appropriate rates.

Monday's measures reflect the uneven progress of Ethiopia's two-year experiment with direct credit controls. Introduced in August 2023 at 14% to curb runaway loan expansion, then averaging above 25% annually, the ceiling was raised to 18% at the end of 2024 as inflation cooled to a five-year low of 16.9%. The newly formed MPC had incrementally loosened controls, but the latest data suggests the transmission mechanism remains unreliable.

The committee noted some success: real GDP grew 9.2% in FY 2024/25, driven by a surge in gold production that helped exports and contributed to Ethiopia's first balance-of-payments surplus in years. Agriculture has rebounded, and tourism is recovering. Interbank markets have also deepened, with 1.26 trillion Birr traded since October 2024 and the seven-day weighted average rate holding at 17.3%, within the NBE's 15% policy corridor.

Yet the MPC judged that "additional time is required before [the policy rate] can serve as an effective anchor alone." Until then, the committee concluded, "it is indispensable to ensure that liquidity injection into the economy is managed in a gradual and orderly manner so as to avoid any unintended expansionary effects."

The MPC will reconvene at the end of March 2026, or earlier if conditions warrant