Ethiopia’s central bank has tightened monetary policy again, raising banks’ reserve requirements and scrapping the long-standing minimum savings rate as it moves to tame inflation and absorb excess liquidity from the financial system. The decisions were taken at the Monetary Policy Committee’s quarterly review meeting on Monday, December 29.
In a statement on Tuesday, the Monetary Policy Committee (MPC) of the National Bank of Ethiopia (NBE) flagged an annual credit expansion of 44.5 percent in November 2025 alongside strong liquidity growth in the banking sector. The committee said it is “indispensable to ensure that liquidity injection into the economy is managed in a gradual and orderly manner” to avoid unintended expansionary effects.
To mop up excess money, the MPC increased the reserve requirement on bank deposits, lifting the monthly average reserve ratio by two percentage points to 10 percent while keeping the daily minimum at 5 percent. Banks will have between three and six months to comply with the new threshold.
In a parallel move, the MPC abolished the minimum savings rate traditionally set by the central bank, a benchmark that had stood at 7 percent in recent years. With immediate effect, deposit interest rates will be set through negotiation between depositors and financial institutions rather than by administrative fiat.
Analysts had widely expected further tightening as authorities pursue a single-digit inflation target in the months ahead. The latest MPC actions are framed as supporting that disinflation drive.
The committee pointed to a surge in loan disbursements and outstanding credit during the first five months of the fiscal year, which pushed broad money to its fastest annual growth. The new measures are intended to ease these pressures and reinforce the signal of a tight monetary stance.
The shift comes in the wake of NBE’s adoption of a price‑based, interest‑rate‑driven monetary framework in July 2024, when the National Bank Rate was set at 15 percent. The latest decisions highlight the bank’s push to make that policy rate more effective in guiding market rates and delivering durable price stability.
