NBE announces monetary policy measures to reduce inflation
Addis Ababa, August 11, 2023 (FBC) – The National Bank of Ethiopia has announced monetary policy measures to reduce inflation.
In its Monetary Policy Statement sent out today NBE said it has taken a number of policy measures to help reduce inflation in a significant and sustained manner.
The Ethiopian economy and population have lived with inflation for a very long time, as seen from the average inflation rate of 16 percent per year registered over the past decade. Inflation outturns over the past two years have risen even beyond this average historical rate and persisted for much longer than initially expected, the statement stated.
It says Ethiopia’s latest inflation outturn as of June 2023 shows a year-on-year headline inflation rate of 29.3 percent, which has brought inflation to below 30 percent for the first time in two years.
The Monetary Policy Statement disclosed that inflation in the Ethiopia is now about 5 percentage points below the 34 percent inflation rate of a year ago (June 2022) and is also notably below the peak inflation rate of 37 percent seen in recent years. While there has thus been some modest progress, this is clearly not enough.
Regarding food inflation, the statement mentioned that it is down 10 percentage points over the past year (now 28% vs 38% a year ago) but nonetheless remains high.
Non-food inflation has trended upwards in recent months and is 3 percentage points higher now (31%) than it was a year ago (28%), it adds.
In addition, the inflation rate seen on a monthly basis shows prices were 3.3 percent higher in June 2023 compared to May 2023, pointing to continued inflationary pressures within the economy.
The statement further said using latest data available to June 2023 that NBE has recently undertaken a detailed empirical assessment of inflation’s underlying determinants and found that the combined impact of supply-side factors, cost-push factors (including external shocks), and expansionary fiscal or monetary policy helps explain the surge in Ethiopia’s recent inflation.
At the same time, given the succession of shocks Ethiopia faced in the last few years, fiscal and monetary policies have been relaxed during this period to help address and respond to the varied range of internal and external shocks it said adding that this has not helped in the battle against inflation, even if the looser stance of macro policies has not been the exclusive driver of Ethiopia’s inflation outturns during this period.
“With multiple contributors to inflation, the long-term solution to Ethiopia’s inflation problem must necessarily involve coordinated efforts in multiple areas and among multiple stakeholders: supply-side measures to improve food production and productivity, structural measures to improve transport networks, logistics systems, and the competitiveness of retail and wholesale trade, Fiscal policy as a supportive role alongside the supply-side and structural measures outlined above” measures the Monetary Policy Statement indicated.
Three aspects of the monetary policy measures being taken today include: slowing down credit growth but not eliminating it, the decision to lower credit growth and the use of credit ceilings, it has stated.
In conclusion, the statement said NBE stands determined alongside other stakeholders to achieving a major inflation reduction in both the current and upcoming fiscal year, so that this long-standing burden faced by all Ethiopians is meaningfully and sustainably addressed in the period ahead.