July 19, 2024

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NBE Governor Announces Major Reforms for Ethiopia’s Financial Market

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Today, NBE announced the major reforms for the financial market of Ethiopia. Governor Mamo Mihretu of the National Bank of Ethiopia is set to initiate a formal market operation in two days, allowing banks to trade their liquid assets. This move replaces the previous informal exchanges and is seen as a step towards an interest-based monetary policy framework, potentially invigorating Ethiopia’s financial market.

In a meeting with bank presidents, Mihretu announced a new policy interest rate of 15%, which is three percentage points lower than the rate previously used for lending to commercial banks experiencing liquidity issues. He also introduced overnight lending and deposit facilities to help banks manage short-term liquidity, with these facilities offering an interest rate three percent below the policy rate.

Mihretu clarified that these new interest rates do not affect the rates banks offer to their depositors or borrowers. However, he indicated that there would be a review of the savings rates paid to depositors.

Additionally, the central bank will conduct biweekly auctions of securities to either absorb excess money from the economy or inject funds as needed. Mihretu also revealed plans for a more active interbank lending market, facilitated through the National Bank of Ethiopia’s central security depository system.

Describing these NBE reforms as a historic shift in the country’s monetary policy, Mihretu plans to meet with the treasurers of all commercial banks on Wednesday to further discuss these developments. This comprehensive strategy marks a move towards a more market-oriented and dynamic financial sector in Ethiopia.

Moreover, the National Bank of Ethiopia has announced that the country’s inflation rate for the month of June has dropped to 19.9 percent. Inflation was 29.3 percent in the same month last year. Read More…

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