Ethiopian monetary policy will remain restrictive over 2024-2025

As reported by Fitch Solutions

Summary

• The Governor of the National Bank of Ethiopia has signaled that monetary policy will remain restrictive through the rest of 2024 and into 2025, with no easing of interest rates expected in the near term.
• Analysts forecast that the National Bank Rate could rise to 17% by the end of 2024, reflecting the central bank's focus on containing inflation.
• The restrictive stance is driven largely by inflation pressures stemming from Ethiopia's currency liberalization, which has led to a significant depreciation of the birr against major currencies and contributed to higher import costs and domestic prices.
• The NBE is balancing the need to support the transition to a flexible exchange rate with the imperative to anchor inflation expectations and protect purchasing power.
• Tight monetary policy is also consistent with Ethiopia's IMF program commitments and the broader objective of achieving macroeconomic stability.