NBE Reports Food Inflation Falling from 31 Percent to 14.6 Percent in a Year

 

The National Bank of Ethiopia’s (NBE) Monetary Policy Committee (MPC) convened its second meeting on March 25, 2025, to assess the country’s economic and financial landscape. In line with its mandate under Article 23 of the NBE Establishment Proclamation 1359/2025, the MPC recommended maintaining the current monetary policy stance, which the NBE Board approved. The statement reads, “The MPC proposes monetary policies for adoption by the NBE Board, consistent with the central bank’s primary objective of maintaining price stability while supporting growth.”

Inflationary pressures continued to ease, with the February 2025 inflation rate falling to 15%, marking a notable decline since the previous MPC meeting in December 2024. The Committee attributed this progress to tight monetary policies, improved agricultural production, and gradual adjustments in administered prices. Food inflation saw a sharp decline to 14.6%, down from 31% a year ago, while non-food inflation stood at 15.6%, though it experienced minor upward pressure due to exchange rate pass-through effects. Encouragingly, month-on-month inflation dropped to 0.5% in February, marking four consecutive months of subdued price increases.

Economic activity maintained strong momentum, bolstered by a favorable ‘meher’ harvest and targeted supply-side interventions in agriculture. The easing of foreign exchange constraints supported industrial growth, while exports of key commodities such as coffee and gold remained robust. Service sectors, including air transport and tourism, also showed remarkable resilience, contributing to overall economic expansion. NBE’s Composite Index of Economic Activity (CIEA) further confirmed the sustained growth trend.

On the monetary front, broad money and base money growth accelerated to 22.8% and 42.0%, respectively, as of January 2025. The MPC attributed this to moderated credit policies and increased foreign exchange reserves, driven primarily by gold-related inflows. Domestic credit growth remained stable at 19.8%. The rise in reserve money reflected the central bank’s proactive liquidity management, ensuring monetary stability while accommodating economic growth.

Interest rate developments showed positive real returns for the first time in years. The yield on 364-day Treasury Bills rose to 17.7% in February, up from 15.9% in December 2024. Similarly, inter-bank money market rates reached 16.7%, remaining within the NBE’s interest rate corridor. Inter-bank transaction volumes grew steadily, reaching ETB 338.8 billion by the end of February.

The banking sector remained resilient, characterized by adequate capitalization and low non-performing loans. However, some banks faced liquidity challenges due to high loan-to-deposit ratios. The MPC acknowledged the role of the recently introduced inter-bank money market and Standing Lending Facility in alleviating short-term liquidity pressures.

Ethiopia’s fiscal discipline also supported monetary policy objectives. The government maintained strict fiscal management, avoiding monetary financing of the deficit so far in the fiscal year. This approach further strengthened the credibility of the central bank’s inflation-targeting measures.

On the external front, the Committee noted significant improvements, driven by strong export growth, increased remittances, and capital inflows supported by last year’s exchange rate reforms. For the first time in years, the country achieved a current account surplus in the first half of the fiscal year. FX reserves rose substantially, providing a buffer against external shocks.

While the MPC welcomed the progress in reducing inflation, it acknowledged that the current inflation rate remains above the medium-term target of single digits. The Committee underscored the importance of maintaining a cautious monetary policy stance to ensure continued disinflation. Accordingly, it recommended keeping the National Bank Rate (NBR) unchanged at 15% and retaining the 18% annual credit growth cap. Rates for NBE’s Standing Deposit Facility, Standing Lending Facility, and reserve requirements also remain unchanged.

The Committee emphasized the need for vigilant monitoring of foreign exchange inflows to prevent unintended monetary expansion. Future policy decisions will be guided by inflation dynamics and overall economic developments. The MPC is scheduled to reconvene at the end of June 2025 to reassess its stance.