National Bank Introduces Tight Monetary Policy

Addis Ababa Sebtember 1/2021 (ENA) National Bank of Ethiopia (NBE) has introduced a contractionary monetary policy that would be effective as of today.

A contractionary monetary policy increases interest rates in order to slow the growth of the money supply and bring down inflation.

This can slow economic growth and even increase unemployment but is often seen as necessary to cool down the economy and keep prices in check.

Briefing journalists, NBE Deputy Governor and Chief Economist Fikadu Digafe said the revised tight monetary policy is aimed at limiting the amount of money in circulation in the economy in order to reduce inflation in the country.

Accordingly, the revised monetary policy increased banks’ reserve requirement from their outstanding deposit and lending rate of the National Bank of Ethiopia to banks from 5 percent to 10 percent, and 13 percent to 16 percent, respectively.

The revised monetary policy also obliges banks to deposit 50 percent of their foreign currency gained from export trade, private and nongovernmental organization remittances, he added.

Besides, the policy raised bank customers maximum foreign currency amount in their diaspora account from the previously 31.5 percent to 40 percent.

NBE Financial Institution Supervision Deputy Governor, Solomon Desta said on his part that the tight monetary policy forces banks to start technology oriented consistent system which  helps them to know their customers well and effectively run the activities in their banks.

The policy also allows the Development Bank of Ethiopia to sell bonds to banks, insurance and pension institutions to increase its revenue, it was learned.