The central bank has instructed commercial banks to reinvest returns from bonds maturing next year and onwards on treasury bills.

The banks bought the bonds for eight years after a directive from the National Bank of Ethiopia (NBE) was issued in 2011. It was a controversial decision that forced private banks to invest 27pc of loans and advances in five-year government bonds. Part of the funds from these bonds were directed towards the Development Bank of Ethiopia (DBE) at a low interest rate of three percent, which was adjusted to five percent in 2018.

The mandatory rule was lifted soon after Prime Minister Abiy Ahmed's (PhD) administration took the helm of office following years of pressure from executives of commercial banks. Over the years since its introduction, private banks had spent 116 billion Br in buying the bonds. The returns on these bonds for the next three months beginning October have already been paid, people familiar with the issue disclosed. Those maturing between January and June 2022 will also be paid to the banks.

Central bank authorities have told banks to spend returns from bonds maturing beginning July next year and subsequently bonds with maturity dates beginning in December 2023.

The central bank has already started making the conversion though the bonds are yet to mature, a measure leading to the oversubscription of treasury bills during the latest auction on October 6. The regulatory body accepted offers of 32.6 billion Br, though a total of five billion Birr worth of 365-day bills were brought to the auction. This has reversed an all-time low interest in treasury bills seen recently.

In two consecutive auctions held last month for 60 billion Br worth of T-bills, offers made were for less than 12 billion Br. Liquidity crunch was attributed to the central bank's directive issued in September this year to increase their reserve ratio to 10pc, double the previous threshold.

"It's been difficult to meet these requirements, let alone invest in T-bills," a senior bank executive, who asked to remain anonymous due to the sensitivity of the issue, told Fortune.

Banks were benefitting from the returns paid monthly on maturing bonds, according to this executive. He believes the timing could not be more wrong for the central bank to force the banks to reinvest the returns in treasury bills, considering the liquidity issues.

Officials at the central bank declined to comment.

Experts have their own opinions, however.