Ethiopia’s central bank has kept its benchmark interest rate at 16 percent, holding steady as inflation remains in double digits and the economy adjusts to a sweeping set of reforms.
The National Bank of Ethiopia’s Monetary Policy Committee, meeting for the eighth time on November 3, voted to hold the policy rate, with the interest rate corridor unchanged at plus or minus 300 basis points. The bank said inflation, which stood at 14.9 percent in September after peaking at 15.3 percent in July, was expected to stay in double digits for at least six more months.
The decision reflects the delicate balance facing the bank. Cutting rates too soon could reignite inflation, while holding them too high risks choking off the credit that businesses need to grow.
A reforming economy
Ethiopia has been overhauling its economy since 2024, floating its currency, liberalising its financial sector and opening up to foreign investment. The reforms have been painful — the birr has lost much of its value, and prices have risen sharply — but the government argues they are necessary to put the economy on a sustainable footing.
Broad money growth of 40.2 percent underlines the scale of the challenge. The central bank has been trying to mop up excess liquidity while keeping credit flowing to productive sectors, a task made harder by the government’s own borrowing needs.
The bank’s next meeting is scheduled for the end of January 2027, when it will reassess whether inflation is on a path back towards single digits.
What it means for Ethiopians
For ordinary Ethiopians, the high policy rate translates into expensive borrowing and little relief from the rising cost of food, fuel and housing. The bank’s statement acknowledged the hardship but argued that bringing inflation down was the precondition for durable growth.
The hold at 16 percent is, in effect, a bet that patience will pay off — that the reforms will begin to bear fruit, that inflation will ease, and that the central bank will be able to start cutting rates next year without losing control of prices. It is a bet the country’s 120 million people will be watching closely.
