Rising Inflation Forces NBE Ethiopia to Raise Interest Rate

NBE Ethiopia has raised interest rate this week. This is the first increase in the interest rate by the national bank of Ethiopia (NBE) since 2024. The one percent increase from 15% to 16% is indicative of inflationary pressure on the Ethiopian economy. At the end of last year in December 2025, Ethiopia managed to lower its inflation to single digit. The single digit inflation rate continued till March this year. In April, it rose to 11.7%, followed by 13.4% in May.

Conflict in the Middle East is one of the main reasons behind rising inflation in Ethiopia. With no end to the conflict in sight, it is nearly impossible to reduce the inflation rate to below 10% this year. However the country wants to sustain economic growth. Ethiopia has one of Africa’s fastest-growing economies, expanding by nearly 9.2% in the 2024/25 fiscal year and projected to exceed 10% this year. NBE this week reduced the foreign exchange surrender requirement for goods exporters from 50% to 30% and lowered its foreign exchange (FX) commission rate from 2.5% to 1.5%. It removed the 24% annual credit growth ceiling that had been imposed on commercial banks for the past two years. It remains to be seen if these policy decisions will help sustain economic growth or not.

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