The National Bank of Ethiopia (NBE) has announced the adoption of an interest-rate-based monetary policy regime in line with international best practices to ensure price stability and foster economic growth.
The new regime comes as the central bank takes a major step to switch away from the previous credit ceiling policy.
This is to ensure low and stable inflation, the bank said in a statement Tuesday.
Setting its initial policy interest rate at 15 per cent, the NBE will use the new interest policy to create an interbank market for currency trading.
The policy, known as the National Bank Rate (NBR) will also influence broader monetary and credit conditions.
“Starting on July 11, the NBE will begin monetary policy-related auctions to either withdraw liquidity from or supply liquidity to the banking system every two weeks,” it said.
The bank said it would retain its past tools for managing liquidity during the transition period to the new monetary policy framework.
“The reform represents a historic step in modernizing NBE’s monetary policy framework and aligning its policy tools with global best practices,” it stated.
According to the statement, the bank will also introduce an Overnight Lending Facility and an Overnight Deposit Facility.
This will enable commercial banks to manage their liquidity over the one-day horizon at the NBR rate of plus or minus three per cent.
The apex bank will also establish a new electronic platform to facilitate continuous lending and borrowing among banks. This will enhance liquidity management without central bank intervention.
The NBE said the reform would help address the long-standing macroeconomic challenges. It will equally ensure price stability and foster economic growth in the East African country. (Xinhua)
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