Ethiopia to Maintain High Interest Rates Amid Currency Reforms

AFRICAN BUSINESS AND ECONOMYOctober 23, 2024 at 5:13 PM UTC

TLDR

Ethiopia's central bank maintains high interest rates to manage inflation post foreign exchange policy overhaul.
Inflation decreased to 17.5% but expected to increase, especially for food prices, after birr devaluation.
Current tight monetary policy stays, with subsidies for essential goods to aid low-income groups during transition.

Ethiopia’s central bank will keep interest rates high through the rest of the year as it manages inflationary pressures stemming from a recent overhaul of its foreign exchange policy, Governor Mamo E. Mihretu said.

The bank set its key interest rate at 15% in July as part of a shift to an interest-rate-based monetary framework. While inflation eased to 17.5% last month from 29% a year ago, it is expected to rise again, particularly for food prices, following the currency reforms that weakened the birr by 30% in one day.

Mihretu emphasized that the current tight monetary policy will remain in place, despite no immediate plans to raise rates further. The government is also providing temporary subsidies for essential goods like fuel and medicines to ease the transition for low-income populations, though these subsidies will eventually be phased out.

Key Takeaways

The measures are part of the most significant economic reforms Ethiopia has implemented in decades, including liberalizing the foreign exchange market, raising taxes, and adopting a new monetary policy framework to help secure IMF support as it restructures $29 billion in foreign debt. Ethiopia aims to reduce inflation below 10% by 2025 as the economy adjusts to the reforms.

Ethiopia

Birr

Economy

Currency

Interest Rates

Inflation