Monetary Policy Committee Pushes for Higher Credit Growth, Keeps Policy Rate Unchanged

The Monetary Policy Committee (MPC), in its inaugural meeting, recommended increasing the targeted credit growth rate from 14pc to 18pc, allowing banks to lend more.

The Committee which was established under the newly approved National Bank of Ethiopia (NBE) Proclamation, stated that a sharp decline in key monetary aggregates relative to the economy’s size were observed. Growth rates for broad money, base money, and domestic credit remain below nominal GDP growth. The MPC said gradually reversing this trend will help support economic growth over the medium term.

The Committee also advised the central bank to maintain the current National Bank Policy Rate (NPR) at 15pc, citing persistently high inflation. Although inflation is showing signs of slowing, dropping by 0.8pc in November 2024, it remains well above the target of reaching single digits. The MPC warned that increased government spending and higher foreign exchange inflows could drive inflation back up.

Government spending is expected to rise in the coming months, with allocations for higher wages, social programs, and safety nets, which could increase liquidity and potentially push inflation higher, the Committee says.

The Committee decided to leave unchanged the rates for the National Bank of Ethiopia’s (NBE) Standing Deposit Facility, Standing Lending Facility, and reserve requirements for bank deposits.

It stated that liquidity shortages were observed in the banking industry while the banking system is generally stable with low non-performing loans (NPLs) and adequate capital.