The National Bank of Ethiopia has delayed plans to fully liberalise credit growth, choosing instead to raise the cap on bank lending to 24 percent for the 2025/26 fiscal year. The move comes despite earlier expectations that the ceiling would be lifted by the end of September.

At its fourth meeting held on Monday, the central bank’s Monetary Policy Committee reviewed recent economic and financial conditions. The Committee said inflationary pressures had eased, with the headline rate falling to 13.6% in August, supported by tighter monetary policy and stronger agricultural output. Food inflation slowed to 12.7%, down from 18.8% a year earlier, while non-food inflation increased slightly to 15.1 percent due to exchange rate pass-through.

The MPC decided to retain its benchmark rate at 15%, while keeping unchanged the standing deposit and lending facilities, along with reserve requirements. It argued that removing the credit ceiling entirely at this stage would risk undermining progress on disinflation and could expose the banking system to financial stability concerns.

“Fully removing the ceiling at this stage would be imprudent,” the Committee said, stressing that credit expansion must be carefully managed as the bank transitions to a policy framework that relies more heavily on interest rates and market operations.

The Committee noted that broad money expanded by 23.1 percent year-on-year in August, while base money rose 70.7 percent, driven largely by foreign exchange inflows from gold accumulation. Domestic credit grew by 14 percent over the same period, with banking sector loans up 5.4 percent compared with June.

Exports of gold and coffee, along with remittances and services such as air transport and tourism, showed strong performance during the review period, contributing to a surplus in the current account. However, the Committee maintained that inflation remains the key policy challenge.