Ethiopia’s central bank has kept its main policy rate at 16 per cent, leaving its benchmark unchanged as it seeks to bring inflation back to single digits. The monetary policy committee recommended the decision and the bank’s board approved it; the bank set out the decision in a statement dated 3 November 2026.
Annual consumer price inflation was 14.9 per cent in September 2026. Food and non-alcoholic beverage prices were 14.8 per cent higher than a year earlier, while non-food prices rose by 15.1 per cent over the same period. The bank’s medium-term goal is an inflation rate below 10 per cent.
The overall figure brings together categories that moved at different rates. Meat prices rose by 22 per cent over the year to September, while milk, cheese and eggs rose by 17.7 per cent. Bread and cereals were 8.6 per cent more expensive than a year earlier.
An annual inflation rate compares the cost of a representative basket with its cost a year before. It does not mean every household’s spending has risen by the same amount. If inflation falls but remains positive, the basket’s overall price is still rising, just more slowly.
A hold after July’s increase
The decision leaves in place the rate reached in July, when the bank raised it by one percentage point from 15 per cent. That earlier decision also removed a cap on bank credit growth as the central bank shifted towards an interest-rate-based approach to monetary policy.
The bank retained a corridor of three percentage points on either side of the policy rate. The framework includes overnight lending and deposit facilities for banks at rates linked to that corridor. These facilities help banks manage short-term funds; they are not a single rate imposed on every customer loan or deposit.
The policy rate is intended to signal the central bank’s stance and influence wider monetary and credit conditions. Commercial lending and deposit rates are not automatically fixed at the benchmark, so an unchanged policy rate does not establish the price of every loan or savings product.
Managing money in the banking system
The bank plans to use open-market operations to absorb excess liquidity. Under its monetary framework, these operations are auctions through which the central bank can withdraw funds from the banking system or supply them when conditions require. The November decision specifically points to absorbing excess funds.
It also retained the option of additional reserve requirements targeted at individual banks if credit expansion threatens the inflation outlook. Those assessments would take account of banks’ loan-to-deposit ratios. The decision does not announce a new blanket credit cap or say that every bank will immediately face an additional requirement.
In its assessment, the committee put annual reserve-money growth at 87.2 per cent in the first quarter of the 2026/27 fiscal year, compared with 72.6 per cent in the corresponding quarter of 2025/26. Annual broad-money growth was 40.2 per cent in the first quarter of 2026/27, compared with 33.2 per cent a year earlier.
Reserve money, also called base money, and broad money measure different parts of the monetary system, so their growth rates should not be treated as interchangeable. The bank said its gold operations were a major contributor to reserve-money growth, increasing net foreign assets alongside an injection of local-currency liquidity into the banking system.
In its assessment, the committee noted falling Treasury bill yields and interbank money-market rates, which it said had been negative in real terms since May 2026. It suggested that large excess reserves held by banks at the central bank could help explain the decline in short-term rates. Those market rates are distinct from the policy benchmark itself.
What happens next
The bank expects headline inflation to follow a declining trend but remain in double digits over its six-month forecast horizon. That is a projection, not a guarantee that prices will follow that path. Its decision to maintain a tight stance reflects that outlook as well as its assessment of current monetary conditions.
The committee plans to meet again at the end of January 2027, or earlier if conditions warrant, to consider whether further measures are needed. The decision keeps the benchmark and its corridor unchanged while providing for liquidity operations and targeted reserve requirements as circumstances require.
