Governor Mamo Champions Interbank Open Market Operations, Targets Price Stability

Jul 9 , 2024

Central Bank Governor Mamo Mihretu will launch into two days a market operation for the banks to trade their liquidities, formalising what was an ed hoc exchange between them. Industry observers see this latest move as an official shift towards an interest-based monetary policy framework, and a beginning of a vibrant financial market.

The Governor declared today, gathering presidents of all the banks, that the National Bank of Ethiopia (NBE) policy interest rate of 15pc as the anchor of its monetary policy formulation, three percentage points lower than what it has been lending commercial banks under liquidity strain. Overnight lending and deposit facilities were laid out by the Governor as an instrument to help the banks deal with short-term liquidity at an interest rate three percent lower than its policy interest rate.

However, this interest does not apply to the interest that banks offer to their depositors or borrowers. There would also be a review of the saving rate they pay to depositors.

Mamo also announced biweekly auctions by the central bank of securities to either mop up excess money from the economy or inject into it depending on governing circumstances.

The Governor also disclosed a vibrant interbank lending market facilitated through NBE’s central security depository system.

“It's a historic shift in monetary policymaking in the country,” said the Governor.

The Governor will conven another meeting with treasurers of all the commercial banks on Wednesday.

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