Ethiopia’s central bank lifts credit-growth ceiling to 24% but holds tight monetary stance to protect inflation gains.
Ethiopia Eases Credit Growth Cap to 24% but Holds Firm on Tight Monetary Policy
ADDIS ABABA, Sept. 30, 2025 — Ethiopia’s central bank has raised the ceiling on annual credit growth for commercial lenders to 24% from 18%, easing a key restriction on the financial sector while resisting calls to scrap the cap altogether. The move reflects a cautious balancing act by the National Bank of Ethiopia (NBE), which is seeking to stimulate lending while keeping inflation in check.
The decision followed the bank’s fourth Monetary Policy Committee (MPC) meeting of the year, held on September 25, 2025. In its statement, the NBE stressed that monetary tightening would remain in place despite improvements in liquidity, exports, and overall economic activity.
“The Committee judged that fully removing the ceiling at this stage would be imprudent,” the MPC said. “Our priority is to safeguard price stability while fostering sustainable and inclusive growth.”
Inflation Retreats
Ethiopia’s latest inflation numbers provided the central bank with some room to maneuver. Data from the Ethiopian Statistical Service showed consumer prices rose 13.6% in August, easing from 13.7% in July and marking the lowest level since March 2025. This was the third consecutive month of declining inflation, a sharp contrast from double-digit highs that plagued households in 2023.
Still, the pace of credit expansion remains a concern. At the end of August, broad money supply grew 23.1% year-on-year, while base money surged 70.7%, according to the NBE. Domestic credit rose 14%, and outstanding loans across the banking system expanded 5.4% compared to the previous year.
Economic Resilience
Despite tight policy, Ethiopia’s economy is showing signs of resilience. On October 3, 2024, Ethiopia allowed five private firms to open the country’s first foreign exchange bureaus, marking the end of full state control over currency trade.
The NBE has pointed to stronger performance in agriculture and industry, as well as robust gains in coffee and gold exports. Services such as air transport and tourism also rebounded, providing new revenue streams.
At the same time, imports of semi-finished goods and consumer products weakened, reflecting ongoing foreign exchange management measures and shifting domestic demand.
The government has also refrained from borrowing directly from the central bank in the first two months of the 2025/26 fiscal year, helping reinforce monetary discipline.
Liquidity Conditions Improve
In financial markets, short-term borrowing costs have softened. Yields on 91-day Treasury bills dropped to 15.0% in August, down from 17.6% in June, according to NBE data. Meanwhile, the weighted average rate in the interbank market declined to 13.7%, closer to the NBE’s policy rate corridor of 15% ±3 percentage points.
Analysts attribute the easing to improved liquidity conditions supported by foreign inflows from gold trade, as well as the establishment of a formal interbank money market and a Standing Lending Facility designed to reduce short-term liquidity strains.
Policy Continuity Under New Leadership
The cautious easing comes less than two weeks after Prime Minister Abiy Ahmed appointed Eyob Tekalign as governor of the NBE. Tekalign, a U.S.-trained economist and former state minister of finance, is expected to continue Ethiopia’s push toward financial sector reform while maintaining stability.
His predecessor, Yinager Dessie, had initiated several liberalization steps, including plans for foreign banks to enter Ethiopia for the first time, as part of a broader effort to attract investment into one of Africa’s fastest-growing economies.
External Accounts Strengthen
On the external front, Ethiopia’s balance of payments remains strong. The NBE highlighted robust remittance inflows, increased services trade earnings, and surpluses in the current account. Coffee shipments, which earned the country over $1.3 billion in 2024, continued to anchor foreign exchange reserves, alongside rising gold exports.
“These developments have helped sustain a current-account surplus, while the overall balance of payments has remained in surplus, continuing the robust performance seen last year,” the MPC statement said.
IMF Outlook
The International Monetary Fund projects global growth at 3.0% in 2025 and 3.1% in 2026, with Ethiopia among the beneficiaries of stronger demand and easing U.S. tariffs. The Fund expects Ethiopia’s inflation rate could decline toward 10% by 2026 if the current monetary stance is sustained.
Still, the IMF has warned that Ethiopia’s reform momentum may be at risk due to weakening donor support and external financing constraints.
Balancing Growth and Stability
For now, Ethiopia’s central bank is trying to walk a fine line — supporting credit growth in a still-recovering economy while keeping inflationary pressures contained. By raising the cap but not eliminating it, the NBE is signaling a gradual path toward financial liberalization without sacrificing macroeconomic stability.
As investors look to Ethiopia’s banking reforms, the outcome will likely hinge on whether Tekalign can maintain credibility while opening up one of Africa’s most promising, yet tightly managed, financial systems.
