Ethiopia’s Central Bank Fights an Oil Shock

ETHIOPIA · CENTRAL BANK · INFLATION

Ethiopia’s central bank is holding interest rates high against price rises that, by its own account, stem mainly from supply shocks tied to the Middle East war, which pushed up oil prices. The National Bank of Ethiopia (NBE), through its Monetary Policy Committee, kept its policy rate at 16% on Tuesday 3 November 2026, with annual inflation, the yearly rise in consumer prices, at 14.9% in September.

This matters to US readers because Ethiopia is a coffee exporter whose currency, the birr, trades at about 160 to the US dollar at recent central bank auctions. A central bank that cannot stop an imported price shock leaves savers, importers and families sending money home exposed.

A Shock From Outside

The NBE said in its 3 November statement that supply-side factors remained the main drivers of inflation after the Middle East conflict. Energy items, including electricity tariffs, kerosene and firewood, pushed non-food prices up, while bread, cereals, vegetables, pulses and coffee beans lifted food prices.

Inflation had fallen to single digits by December 2025, after the July 2024 reform programme and a period of tight policy. It rebounded to double digits from April 2026 and reached 13.4% in May, which the bank traced to fuel supply disruptions and higher transport costs.

By September, the NBE said, headline inflation, the overall rise in consumer prices, had “begun to ease from a supply-driven peak” but at 14.9% it remained far above the bank’s single-digit goal. Reports of the Ethiopian Statistics Service, the government’s data agency, put October at 14.6%, the lowest since June, though we could not read the bulletin itself.

What the Bank Did in July

On 13 July the NBE raised its policy rate by one percentage point, from 15% to 16%, and removed its cap on credit growth, which had limited how fast banks could lend. It said the cap had done its job and that scrapping it was “not a change in NBE’s monetary policy stance”, which is why a rate rise went with it.

The bank also cut its foreign exchange commission from 2.5% to 1.5% to lower import costs and reduced the share of export earnings that exporters must sell from 50% to 30%. It added targeted reserve requirements, extra deposits that banks must hold, for lenders whose credit growth threatens prices.

The Counter-Argument: Money Is Also Growing Fast

Not all of the pressure comes from abroad: the NBE itself said on 3 November that recent monetary and financial conditions “signal moderate looseness”. It also noted that money keeps growing faster than the economy.

Reserve money, the cash the bank puts into the system, grew 87.2% year on year in the first quarter of the 2026/27 fiscal year, up from 72.6% a year earlier. Broad money grew 40.2% year on year, up from 33.2%, and the bank said this was above projected growth of nominal GDP, the economy’s output at current prices.

The bank said the rise was driven largely by net foreign assets, the foreign currency and gold it holds, with gold operations injecting local currency into the banking system. It also said yields on Treasury bills, short-term government debt, and rates between banks have turned negative in real terms, meaning below inflation.

Set against September’s 14.9% inflation, the 16% policy rate is positive by only 1.1 points. That gap is thin, and it sits beside bill yields that are below inflation.

What Is Holding the Line

The government has not borrowed directly from the NBE for more than 27 months, which the bank called the longest such period on record. The budget deficit has narrowed too, to 0.9% of GDP in the first ten months of 2025/26 from 2.1% in 2023/24.

We covered the decision in our report on the 16% hold, the data in our inflation story and the refinancing plan in our bond swap story. More sits on the Ethiopia hub.

What It Means for You

If you hold birr or send money to Ethiopia, prices rising near 15% a year erode what each birr buys, even as the rate edges down. If you do business there, expect borrowing costs near 16% and an exchange rate that the central bank no longer fixes.

For investors, one signal to watch is whether non-food inflation falls below food inflation, which would show the oil shock fading. The NBE says its next policy meeting is due at the end of January 2027, or earlier if conditions warrant.

What Is Not Known

It is not known how quickly energy prices will ease or how much of today’s inflation comes from money growth rather than fuel. The NBE gave no number for where inflation will stand in six months, only that it will stay in double digits.

Frequently Asked Questions

What is Ethiopia’s central bank interest rate?

The National Bank of Ethiopia held its policy rate at 16% on 3 November 2026. It had raised it from 15% in July.

What is Ethiopia’s inflation rate?

Annual inflation was 14.9% in September 2026, down from 15.3% in July, and reports put October at 14.6%. The central bank expects it to stay in double digits over the next six months.

Why is inflation high in Ethiopia?

The central bank says supply shocks, mainly the fuel price rise after the Middle East conflict, are the main driver. It also says money conditions are moderately loose.

Sources: National Bank of Ethiopia Monetary Policy Committee press releases of 13 July 2026 and 3 November 2026; Ethiopian Statistics Service consumer price data for July to October 2026, as reported; NBE foreign exchange auction results for October 2026, as reported. NBE releases read 9 November 2026.

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