The National Bank of Ethiopia’s (NBE) Monetary Policy Committee (MPC) is expected to maintain its current monetary policy stance at its meeting next week, with market observers anticipating no immediate changes to the country’s bank credit growth cap despite renewed calls from industry experts to ease lending restrictions for key productive sectors.
The meeting comes as Ethiopia’s macroeconomic indicators send mixed signals. While inflation has resumed its upward trajectory after briefly falling into single digits, money market interest rates—including Treasury bill (T-bill) and Open Market Operations (OMO) yields—have declined sharply, with some falling into single-digit territory.
Financial sector experts argue that these conflicting trends warrant a reassessment of the NBE’s blanket credit growth restrictions, particularly for export-oriented industries, manufacturing, agribusiness, and other productive sectors that are considered less inflationary.
The central bank had previously announced plans to fully remove the bank credit growth cap—introduced in August 2023 to curb inflationary pressures—at the start of the Ethiopian New Year in September 2025. However, that expectation was not realized during the first MPC meeting of the fiscal year held at the end of September.
Earlier, the MPC, which now includes two external members alongside NBE officials, increased the annual credit growth ceiling from 14 percent to 18 percent, citing easing inflation, tight monetary conditions, and improved supply-side developments. More in September, the committee raised the cap again to 24 percent for the remainder of the current fiscal year.
Despite these adjustments, bankers and financial sector experts told Capital they do not expect the committee to recommend lifting or significantly relaxing the credit growth restriction during next week’s meeting.
Some analysts even anticipate the central bank could tighten monetary policy further as inflation accelerates once again.
According to experts familiar with discussions between Ethiopian authorities and development partners, the NBE has revised its original timetable. Instead of removing the cap at the beginning of the fiscal year, authorities have now committed to phasing it out gradually by the end of 2026.
As a result, analysts believe the upcoming MPC meeting is unlikely to produce any major shift in policy regarding the credit cap.
The credit growth cap was introduced in 2023 when Ethiopia’s annual inflation exceeded 20 percent. Since then, inflation had steadily declined, supported by tighter monetary policy, improved fiscal discipline, and the government’s decision to discontinue direct central bank financing.
Headline inflation fell to 9.7 percent in February 2026—the first single-digit reading in more than eight years. However, inflation has since accelerated, reaching 13.4 percent in May.
Analysts attribute much of the renewed price pressure to external shocks, particularly disruptions stemming from the conflict in the Middle East and concerns over shipping through the Strait of Hormuz, which have pushed up global energy costs and import prices.
While inflation has risen again, money market indicators have moved in the opposite direction.
Since May, the NBE has accepted OMO bids at an allotment rate of around 11 percent, well below the central bank’s 15 percent policy rate.
Treasury bill yields have also fallen sharply. During the latest bi-monthly auction held on Wednesday, the government offered 28 billion birr in securities but received bids totaling nearly 97 billion birr, underscoring abundant liquidity in the banking system. The cutoff yield for the 28-day T-bill was just 7 percent.
Eshetu Fantaye, a veteran banking executive and financial expert with more than three decades of experience, believes the sharp decline in money market yields reflects excess liquidity created by the credit growth cap.
“Banks have substantial funds that they cannot deploy through lending because of the credit cap,” Eshetu told Capital. “As a result, they are investing heavily in Treasury bills and other short-term instruments simply to earn some return, even if the yields are relatively low.”
He warned that maintaining a blanket credit restriction across all sectors could ultimately undermine economic growth and even contribute to inflation by constraining domestic production.
“The central bank should distinguish between inflationary and non-inflationary sectors,” he said. “Applying the same lending restriction to all sectors ignores the different contributions they make to the economy.”
According to Eshetu, manufacturers, exporters, agribusinesses, and medium-sized enterprises are treated no differently from sectors that generate greater inflationary pressure.
“Banks naturally prefer lending to businesses that are simpler and more profitable unless the regulator provides targeted incentives or guidance,” he said.
Industry experts argue that the lending restriction is limiting access to working capital for manufacturers and exporters.
Factories producing edible oil, pharmaceuticals, steel, and other essential goods are struggling to finance raw material purchases despite helping address supply shortages that could ease inflation. Some firms continue paying wages while operating below capacity because they cannot secure sufficient financing.
Exporters face similar challenges, with limited access to pre-export financing affecting their ability to fulfill international contracts and generate foreign exchange earnings.
Eshetu suggested that the NBE establish a dedicated unit to oversee sector-specific credit allocation rather than applying a uniform lending ceiling across the banking industry.
“Targeted credit management would stimulate production, increase supply, and support economic growth without necessarily fueling inflation,” he said.
Meanwhile, Ethiopia is awaiting the International Monetary Fund’s (IMF) Fifth Review under the Extended Credit Facility (ECF), with the IMF Executive Board expected to meet on July 1.
Speaking at a press briefing on Thursday, IMF Communications Director Julie Kozack said the review will include a proposal to rephase disbursements under the program by bringing forward approximately 200 million USD to help Ethiopia address the economic impact of the Middle East conflict and rising energy prices, while maintaining the program’s total access at 3.4 billion USD.
“The staff report following Board approval will contain the revised disbursement profile for the remainder of the program,” Kozack said, adding that future reviews will continue assessing Ethiopia’s evolving financing needs.
Separately, NBE Governor Eyob Tekalign recently said Ethiopia’s macroeconomic reforms have significantly improved the country’s debt outlook.
Speaking at an event organized by the Office of the Prime Minister, the governor expressed confidence that the IMF’s assessment would conclude that Ethiopia’s public debt has become sustainable, with the country’s debt-to-GDP ratio expected to improve further over the coming year.
Despite renewed debate over the effectiveness of the credit growth cap, market participants largely expect the MPC to maintain its current policy stance at next week’s meeting.
For many economists, the central question is no longer whether the cap should eventually be removed, but how the central bank can transition toward a fully interest rate-based monetary policy framework while ensuring sufficient credit reaches productive sectors that drive growth, expand exports, and support long-term price stability.
