The exponential rise in inflation in Ethiopia has attracted stringent monetary policy regulations from the National Bank of Ethiopia (NBE).
The Vice Governor and Chief Economist of the National Bank of Ethiopia, Mr. Fikadu Digafe disclosed that, the Bank has instituted prudent monetary measures aimed at “curbing illegal foreign-exchange trading and reducing local-currency supply to gradually bring down inflation rate that’s at a near decade high”.
As part of the regulatory monetary measures, the Vice Governor disclosed that the bank has increased the foreign currencies the banks must remit to the central bank and increased the statutory reserve requirement for commercial lenders from 5 percent to 10 percent.
Also, the National Bank revised its policy rate on lending to the commercial banks from 13 percentage points to 16 percentage points.
Furthermore, the NBE issued a directive for the commercial “banks to deposit 50% of their foreign currency gained from export trade, private and non-governmental organizations remittances” with the NBE, the Chief Economist revealed.
Additionally, the National Bank customers’ maximum cap on their foreign currency amount in their diaspora accounts has been revised upward from 31.5 percent to 40 percent, the Vice Governor disclosed.
In addition to these measures, Mr. Digafe disclosed that the Development Bank of Ethiopia (DBE) has been directed by the National Bank to continue to sell debt instruments such as bonds to banks, insurance, and pension institutions to increase its revenue.
Mr. Digafe further disclosed that the Bank issued a “due diligence directive” that aims at indirectly reducing inflation by prohibiting individuals from operating multiple bank accounts and engaging in unauthorised transactions.
These monetary policy measures are aimed at addressing the 30.4 percent level of inflation recorded in August 2021, which happens to be the highest inflation level since December 2012, Mr. Digafe disclosed.
Other contributing Inflation factors
The Vice Governor disclosed that the experienced level of inflation can in part be attributed to the conflict between the “federal forces and troops from the northern Tigray region that erupted in November”.
And this conflict has since its inception, spread into the neighbouring Afar and Amhara regions, with tens of thousands of farmers compelled to flee their land and factories, Mr. Digafe disclosed.
“The area which is affected by conflicts is not producing. You also have some people displaced who have to be supported and that puts pressure on the market as you have to buy things.”
Mr. Fikadu Digafe
Furthermore, the Minister for Finance, Eyob Tekalign revealed that the “annual food inflation accelerated to 37.6% in August from 32% the previous month as the cost of items from bread to rice increased rapidly”.
In the meantime, the taxes on wheat, sugar, oil, and rice among other commodities have been waived in the government’s quest to ease price-growth, Mr. Tekalign disclosed.
Mr. Digafe further stated that the National Bank of Ethiopia’s prudent monetary policies should not be undermined, as he expects the current level of inflation to patiently decline.
“Inflation will come down to some extent because the impact of monetary policy should not be undermined. Probably it will be challenging, but we hope it will be down slightly and gradually come down.”
Mr. Fikadu Digafe
