Economy
Monetary Tightening Risks Slowing Business Expansion, Experts Warn
Capital Ethiopia · 10 hours ago · Read the Full Story on Capital Ethiopia
AI SUMMARY
Ethiopia's ongoing monetary tightening to curb inflation risks straining private-sector investment and business expansion, according to financial experts.
- The National Bank of Ethiopia maintained its benchmark policy interest rate at 16 per cent and its rate corridor at 13 to 19 per cent after its eighth ordinary meeting.
- Headline inflation stood at 14.9 per cent year-on-year in September 2026, dropping slightly from August but remaining above the central bank's target.
- Non-food inflation rose to 15.1 per cent in September, driven largely by electricity tariff adjustments, fuel price changes, and higher household expenses.
- Financial experts warn that tighter credit conditions alone cannot resolve the structural and supply-side constraints driving price increases.
- The removal of the 24 per cent annual credit growth ceiling in July 2026 has not yet produced a substantial shift in commercial bank lending behaviour.
- Net bank deposits increased by 85.4 per cent year-on-year during the first quarter of the 2026/27 fiscal year, while commercial credit grew by 42.6 per cent.
- The National Bank plans to introduce bank-specific reserve requirements by monitoring individual institutions' loan-to-deposit ratios.
- A 2026 Ethiopian Economics Association study indicates that inflation is fundamentally structural and driven primarily by exchange rate reforms, birr depreciation, and agricultural supply shocks.
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