ADDIS ABABA, July 10 (Xinhua) -- The National Bank of Ethiopia (NBE), the central bank, announced the adoption of an interest-rate-based monetary policy regime in line with international best practices to ensure price stability and foster economic growth in the country.
The new regime comes as the central bank takes a major step to switch away from the previous credit ceiling policy to ensure low and stable inflation, the bank said in a statement Tuesday.
Setting its initial policy interest rate at 15 percent, the NBE will use the new interest policy to be known as the National Bank Rate (NBR) as a means to create an interbank market for currency trading and influence broader monetary and credit conditions.
"Starting on July 11, the National Bank of Ethiopia will begin monetary policy-related auctions to either withdraw liquidity from or supply liquidity to the banking system every two weeks," it said.
The bank said it would retain its past tools for managing liquidity during the transition period to the new monetary policy framework.
"The reform represents a historic step in modernizing NBE's monetary policy framework and aligning its policy tools with global best practices," the bank said.
According to the statement, an Overnight Lending Facility and an Overnight Deposit Facility will also be introduced, allowing commercial banks to manage their liquidity over the one-day horizon at the NBR rate plus or minus 3 percent.
A new electronic platform will also be established to facilitate continuous lending and borrowing among banks, enhancing liquidity management without central bank intervention.
The NBE said the reform would help address the long-standing macroeconomic challenges, ensuring price stability, and fostering economic growth in the East African country.
