The International Monetary Fund (IMF) has urged the National Bank of Ethiopia (NBE) to remain prepared to tighten monetary policy further if a second round of inflationary pressures emerges, emphasizing the need to preserve the macroeconomic gains achieved under Ethiopia’s economic reform program.
The IMF’s warning comes as inflation, which briefly fell to single digits in February, has accelerated again since April. The Ethiopian government has attributed the renewed price pressures largely to external shocks, particularly the conflict in the Middle East and concerns over disruptions to shipping through the Strait of Hormuz, which have driven up imported fuel costs.
The recommendation followed the IMF Executive Board’s completion of the fifth review of Ethiopia’s 48-month Extended Credit Facility (ECF), unlocking an immediate disbursement of about US$464 million to support the country’s balance of payments and fiscal financing needs.
According to the IMF, maintaining a tight monetary stance remains appropriate to anchor inflation expectations. However, the Fund stressed that the NBE should stand ready to tighten policy further if higher fuel prices and other external shocks trigger broader, second-round inflationary effects.
The IMF also encouraged the central bank to continue modernizing its monetary policy framework and deepen reforms in the foreign exchange market, including expanding the interbank FX market, easing selected exchange restrictions, enforcing net open FX position limits, and strengthening competition among banks.
Since August 2023, the NBE has maintained a credit growth cap on banks, which currently stands at 24 percent. The central bank had previously indicated it would begin lifting the cap by September 2025, while it was not happened. Although officials had signaled further adjustments by the end of last month, no changes have yet been announced.
