Ethiopia central bank raises policy rate, cites oil price shock

Ethiopia's central bank raised its main interest rate by one percentage point to 16% on Monday, in its first shift since 2024, citing renewed inflationary pressures from the global oil price shock.

The Horn of Africa country's headline inflation rose to 13.4% year-on-year in May from 11.7% in April.

The National Bank of Ethiopia aims to bring inflation down to single digits over the medium term.

"While inflation is projected to moderate by December 2026, it will likely remain in the double digits over the six months forecast horizon," the central bank said in a statement.

Tight monetary policy

It added that it would keep a tight monetary policy stance by effectively using all indirect monetary policy instruments as its disposal.

Other actions taken by the bank included reducing a foreign exchange surrender requirement on goods exports from 50% to 30%, lowering its foreign exchange commission rate from 2.5% to 1.5%, removing a credit cap and implementing a targeted reserve requirement based on individual banks' loan-to-deposit ratios.

Ethiopian Prime Minister Abiy Ahmed has been gradually opening up parts of the economy since taking over in 2018.