Central Bank Lifts the Credit Cap, Loosens the Dollar Leash

The National Bank of Ethiopia (NBE) has scrapped its cap on bank credit growth and sharply cut the share of foreign currency exporters have to surrender, dismantling two of its most consequential financial controls as it presses ahead with market-oriented reforms.

The gamble is that price signals and closer supervision can now do the work a blunt ceiling once did, without letting inflation loose. The Board of NBE approved the measures today, July 13, 2026, following recommendations from its Monetary Policy Committee, according to a statement issued after the committee's seventh meeting.

Goods exporters will now surrender 30pc of their foreign-currency proceeds, down from 50pc, leaving them with access to as much as 70pc of their export earnings, against half before, though the Central Bank has yet to disclose detailed implementation rules. The NBE also cut its foreign-exchange commission rate to 1.5pc from 2.5pc, saying the reduction would lower import costs, curb inflationary pass-through and promote a more efficient currency market.

Together, the decisions amount to a calculated loosening of administrative controls over credit and foreign exchange. Yet the Central Bank is trying to ensure the changes are not mistaken for a broader retreat from monetary restraint.

To counter the inflationary risk of removing the credit ceiling, the Central Bank raised its policy interest rate by one percentage point while leaving its interest-rate corridor unchanged at three percentage points above or below the benchmark. The statement did not disclose the resulting numerical policy rate, nor specify when all the measures would take effect.

"The removal of the credit cap is not a change in NBE's monetary policy stance," the committee said, reaffirming its commitment to tight policy and a medium-term goal of bringing inflation into single digits.

The package replaces a blanket ceiling on credit expansion with a mix of interest rates and bank-specific supervision. The statement disclosed that the NBE would impose additional reserve requirements on individual banks if assessments of their loan-to-deposit ratios showed that lending growth was generating inflationary pressure. That approach gives banks more freedom to decide where and how much to lend, but hands the Central Bank discretion to penalise banks it judges too aggressive.

One visible ceiling, in effect, is being replaced by the price of money and the threat of targeted intervention.

The cap had been introduced as a temporary instrument while the NBE moved towards an interest-rate-based policy framework, and the Committee said it had achieved its purpose and could now be withdrawn.

The decision could lift a heavy constraint on banks’ balance-sheet growth, reviving competition for borrowers and unlocking financing for companies whose access to working capital and investment loans had been squeezed by credit rationing.

However, the freedom to lend will not be unlimited. Banks will have to weigh new loans against the higher policy rate, their deposit base and the possibility of additional reserve requirements. Private banks appear to have some room to expand, their average loan-to-deposit ratio falling to 72.7pc during the review period from 90.3pc in the 2022/23 financial year, a decline the Central Bank attributed to better liquidity management, deposit mobilisation and loan collection.

The surrender rule could prove equally important for exporters. By cutting the mandatory rate by 20 percentage points, the Central Bank is letting exporters keep a much larger portion of their hard-currency receipts, which could help them pay for imported inputs, machinery and other foreign obligations without returning at once to banks for currency.

“The move was meant to improve export competitiveness, strengthen confidence and deepen the foreign-exchange market,” the Committee said.

It comes as Ethiopia's external accounts improve since the exchange-rate and economic reforms of July 2024. According to the NBE, goods-export earnings had tripled from their pre-reform level, while transfers had increased. The current-account deficit narrowed to 1.8 billion dollars in the 2025/26 fiscal year from 6.2 billion dollars in 2023/24, an expanding capital-account surplus helped swing the overall balance of payments into surplus.

The Central Bank claims that foreign-exchange reserves “increased to 20 times their pre-reform level,” but stopped short of disclosing the total.

Nonetheless, the headline gains hide some weaknesses. Coffee and oilseed export volumes fell during the year, while merchandise imports increased. Analysts see the surrender cut as much an attempt to encourage future supply as a response to recent gains.

The timing is also delicate for inflation. Annual headline inflation increased to 13.4pc in May, from 11.7pc in April and 9.7pc in December 2025, with food inflation at 15pc and non-food at 11.1pc. The Central Bank blamed much of the resurgence on higher transport costs from fuel-supply disruptions linked to the Middle East conflict, and expects inflation to ease by December but stay in double digits over the next six months.

Monetary growth also remains high despite signs of slowing.

Reserve-money growth eased to 43pc in the 2025/26 fiscal year from 66.4pc a year earlier, while broad-money growth moderated to 32.7pc from 35.2pc.

According to the NBE, much of the reserve-money expansion came from rising net foreign assets, particularly gold-related operations, rather than domestic credit alone.

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