The Ministry of Finance aims to raise 197.2 billion birr through Treasury bill (T-bill) auctions during the first quarter of Ethiopia’s 2026/27 fiscal year. This initiative comes as government borrowing costs continue to decline and the National Bank of Ethiopia (NBE) increasingly employs market-based monetary policy instruments, including repurchase (repo) operations.
According to the ministry’s auction calendar, seven T-bill auctions are scheduled between July 8 and September 30, 2026. The largest single issuance, valued at 40 billion birr, is slated for August 5.
The fiscal year’s inaugural auction on July 8 successfully raised 30.71 billion birr at an average yield of 9.2 percent. This marks a return to single-digit T-bill rates after an extended period of elevated borrowing costs.
Treasury bill yields had already been trending downward in the previous fiscal year, reaching an average of 11.7 percent by the end of the 2025/26 budget year, before declining further in the new fiscal year’s first auction.
The issuance program encompasses four maturities: 28-day, 91-day, 182-day, and 364-day T-bills. Of the total planned issuance, 78.9 billion birr will be offered through 364-day bills, 59.15 billion birr through 182-day bills, 39 billion birr through 91-day bills, and 19.72 billion birr through 28-day securities.
The decrease in T-bill yields aligns with the NBE’s reforms, which seek to transition from direct monetary controls to an interest rate-based monetary policy framework. In this new framework, short-term interest rates and market liquidity play a more significant role in shaping financial conditions.
A crucial element of this transition is the expanded use of repurchase agreements through open market operations (OMOs). Repo transactions enable the central bank to inject or absorb short-term liquidity by buying or selling government securities with an agreement to reverse the transaction later. This makes them a key tool for guiding money market interest rates and enhancing monetary policy transmission.
In its latest review of Ethiopia’s reform program, the International Monetary Fund (IMF) noted that the NBE shifted its liquidity operations in January 2026 from fixed-rate, full-allotment operations to uniform-rate auctions. This change reflects the growing importance of market-based instruments in monetary management. However, the IMF also observed that liquidity absorption operations have become more costly for the central bank and that auction volumes have decreased, despite strong demand from banks.
The IMF emphasizes that more active use of repo operations and other open market instruments will be vital for strengthening monetary policy transmission and managing inflation as Ethiopia continues its financial sector reforms. The Fund also stressed that direct quantitative controls, such as credit growth caps, should gradually be replaced by market-based monetary policy tools.
Market participants suggest that the sharp decline in Treasury bill yields might reduce the attractiveness of government securities for investors compared to recent months. Conversely, lower yields decrease the government’s domestic borrowing costs and could serve as a benchmark for lower interest rates across the financial system as repo transactions and the interbank money market become more active.
Since Ethiopia launched its macroeconomic reform program in mid-2024, the Treasury bill (T-bill) market has expanded significantly. It has become the government’s primary source of domestic financing and provides the securities necessary for the National Bank of Ethiopia’s (NBE) expanding repo market and broader open market operations (OMOs).
For the 2026/27 fiscal year, the approved 2.3 trillion birr federal budget projects that approximately 330 billion birr, or about 14 percent of total expenditure, will be financed through domestic borrowing, primarily via T-bill issuances.
Two weeks ago, the NBE’s Monetary Policy Committee increased the policy interest rate from 15 percent to 16 percent. The 15 percent rate was initially introduced in July 2024 when Ethiopia adopted its new monetary policy framework. This recent adjustment highlights the central bank’s dedication to guiding monetary policy through interest rates, moving away from direct administrative controls.
The broader reform agenda has also strengthened Ethiopia’s money market infrastructure. Since market-based pricing was introduced in the primary T-bill market in late 2019, government securities have increasingly served as the benchmark for domestic interest rates and a crucial element of the country’s developing monetary policy framework.
The reduction in interest rates has not been confined to T-bills. OMO rates also decreased sharply, with the yield at the final liquidity absorption auction of the previous fiscal year, held on June 25, falling to 8.5 percent.
According to experts, the convergence of lower T-bill yields, declining OMO rates, and the increased use of repo operations indicates Ethiopia’s gradual shift toward a modern, market-based monetary policy framework. If these reforms continue, they could improve liquidity management, enhance the effectiveness of monetary policy, foster deeper domestic financial markets, and reduce the government’s financing costs.
