Today, on October 31, 2024, the National Bank of Ethiopia (NBE) launched its new online Interbank Money Market platform. This initiative aims to modernize the financial sector and support an interest-rate-based monetary policy framework. The platform allows banks to lend to and borrow from each other, enhancing liquidity management across the banking sector.
Key Features of the Interbank Money Market
Efficient Liquidity Management
The platform of the online money market by NBE facilitates short-term borrowing and lending with maturities of one day or seven days. This feature helps banks cover shortfalls and invest surplus funds effectively. The Interbank Money Market will enhance market stability and reduce systemic risks by promoting competition among banks.
Integration with the Ethiopian Securities Exchange
The NBE Interbank Online Money Market operates exclusively on the Ethiopian Securities Exchange (ESX) trading platform. This integration ensures secure, efficient, and transparent transactions. It streamlines interbank dealings and provides all participating banks equal access to financial resources.
Clear Regulatory Framework
The NBE’s Interbank Money Market Directive and Code of Conduct guide the platform’s operations. These regulations promote transparency, fairness, and accountability among participating banks. They ensure that all transactions adhere to standardized rules.
Restricted Participation
Only NBE-approved commercial banks can participate in the Interbank Money Market. This eligibility requirement maintains the integrity and stability of the trading system. It ensures that only qualified banks engage in transactions.
Interest Rate Corridor
Banks must trade within an interest rate corridor set by the NBE. The corridor ranges from the National Bank Rate (NBR) +3% to NBR -3%. This structure helps align interbank transaction rates with the NBR. If rates exceed this range, the NBE can intervene using liquidity management tools.
Encouragement for Active Participation
The NBE encourages all commercial banks to use this new trading platform for effective liquidity management. This collaborative approach will strengthen the banking sector and stabilize long-term financial stability.
Final Words
The launch of the Interbank Money Market marks a significant advancement in Ethiopia’s monetary policy framework. It aligns with global best practices and enables banks to manage liquidity more efficiently. The NBE can influence short-term interest rates through this platform.
Commercial banks must cooperate fully and adhere to the code of conduct as market participants. This initiative aims to enhance financial stability and support effective monetary policy transmission in Ethiopia’s evolving economic landscape.
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