Ethiopia's central bank has held its benchmark rate at 15 per cent while expanding the cap on credit growth to 24 per cent for the 2025/26 fiscal year, balancing a cautious monetary stance with support for economic expansion. The move coincided with the country's inaugural export shipments under the African Continental Free Trade Area, marking a defining moment in Ethiopia's trade and financial policy strategy.

The National Bank of Ethiopia's Monetary Policy Committee, meeting on 25 September, opted to maintain the National Bank Rate at 15 per cent and leave reserve requirements and standing facility rates unchanged. It raised the banking system's allowable annual credit growth ceiling from 18 per cent to 24 per cent, rather than removing the cap entirely as some market watchers had anticipated. The decision was approved by the NBE Board.

The MPC's communique emphasised that inflation remains above the medium-term objective of single digits, justifying the retention of a tight monetary direction. Nonetheless, the committee described the partial easing of the credit limit as“an important step toward shifting from direct to indirect monetary policy instruments.”

Commentator reaction has been mixed. Some commercial banks expressed scepticism that the looser cap would materially affect credit flows, citing ongoing liquidity constraints. One bank president observed that the six percentage point increase“will not produce any meaningful positive impact on the financial industry,” noting that many institutions already lack the capacity to expand lending at the previous limit.

The timing of the decision is significant. Earlier in October, Ethiopia launched its first trade in goods under the AfCFTA, dispatching shipments of agricultural produce and processed goods via air and land to partner nations including Kenya, Somalia, and South Africa.

Trade and Regional Integration Minister Kassahun Goffe described the first shipments-comprising meat, fruits, coffee, pulses and oilseeds-as a milestone in redefining Ethiopia's trade orientation toward intra-African markets. In parallel, State Minister Yasmin Wohabrebbi noted that textiles and industrial inputs would follow in future consignments.

AfCFTA supporters argue that the free trade zone's full benefits will depend on Ethiopia's ability to align its domestic financial and trade infrastructure. Observers note that eliminating tariffs is only one barrier; inefficiencies in customs, logistics bottlenecks, and currency volatility could undermine gains.

Ethiopia's macroeconomic backdrop adds urgency to these policy shifts. Inflation eased to 13.6 per cent in August, down marginally from 13.7 per cent in July.

The appointment of Dr Eyob Tekalign as central bank governor in September introduces additional dynamics. Tekalign, formerly State Minister of Finance, assumes leadership amid expectations of more progressive monetary reform. Analysts suggest his cautious approach in this first policy cycle is a signal of calibrating credibility and stability rather than radical liberalisation.

Externally, Ethiopia faces pressures on its reform trajectory. The International Monetary Fund has flagged waning donor support and challenges such as a flourishing parallel foreign exchange market.

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