NBE announces launch of online inter-bank money market platform

Addis Ababa, October 31, 2024 (FBC) – As part of its transition towards an interest-rate based monetary policy framework, the National Bank of Ethiopia (NBE) today announced the establishment of an online money market trading platform that will enable banks to lend to and borrow from each other.

The launch of the online Interbank Money Market platform is an initiative aimed at strengthening liquidity management in the banking sector. This market facilitates short-term borrowing and lending among banks with maturities of a one day or seven days, allowing efficient liquidity management to cover shortfalls or invest surplus funds. By improving liquidity management and encouraging healthy competition, the Interbank Money Market will enhance overall market stability, reduce systemic risk, and offer better services for customers with more stable interest rates.

This initiative aligns with the NBE’s efforts to modernize the financial sector and foster cooperation among banks, ultimately supporting effective monetary policy transmission and strengthening the implementation of macroeconomic reforms.

The new inter-bank money market platform has the following notable features:

■ First, the deployment of the interbank money market is officially starting today, enabling commercial banks to trade short-term liquidity. This initiative marks a significant step towards enhancing liquidity management in the banking sector and promoting financial stability. The introduction of the Interbank Money Market will provide banks with a secure, efficient, and transparent mechanism for managing their liquidity requirements, thereby fostering greater financial cooperation and resilience within the banking ecosystem.

■ Second, the new interbank money market will operate exclusively on the Ethiopian Securities Exchange (ESX) trading platform that has been approved by the NBE, ensuring the highest levels of security, efficiency, transparency and comprehensive reporting. This approved platform is expected to streamline interbank transactions and establish a unified marketplace for liquidity management, ensuring that all commercial banks have equal access to vital financial resources, as per the central bank’s press release.

■ Third, the Interbank Money Market will function in accordance with the NBE’s Interbank Money Market Directive and Code of Conduct. These regulatory frameworks provide a clear rules and guidelines, ensuring that all participating banks adhere to standardized rules and ethical practices. This will help promote transparency, fairness and accountability in the market, fostering a well-regulated environment for interbank transactions.

■ Fourth, participation in the Interbank Money Market is restricted to the NBE approved commercial banks, ensuring that only qualified commercial banks that meet the necessary criteria are involved in the market. This approval of eligibility is designed to maintain the integrity and stability of the interbank trading system, while ensuring that all transactions are carried out by banks with the appropriate regulatory and financial standing.

■ Fifth, Banks participating in the Interbank Money Market are expected to trade within the interest rate corridor set by the NBE, based on the National Bank Rate (N BR). This corridor establishes NBR+3% as the upper limit and NBR-3% as the lower limit for interbank transaction interest rates, ensuring trades occur within the corridor and predictable range. It is expected that interest rates in the interbank market will align with the NBR but, should this not be the case, the NBE will intervene using liquidity management instruments to ensure that the interbank interest rate converges to the NBR.

■ Sixth, the NBE encourages all commercial banks to actively participate in the Interbank Money Market and make use of the new trading platform to manage their liquidity requirements efficiently. This collaborative approach will strengthen the banking sector and contribute to the long-term stability of the financial sector and monetary policy implementation.

NBE asserted that the launch of the Interbank Money Market marks a significant breakthrough in strengthening NBE’s monetary policy framework by bringing it in line with global best practices.

It was mentioned that this initiative enables banks to manage liquidity more efficiently within the banking system while allowing the NBE to influence short-term interest rates.

When interbank money market rates move outside the desired corridor, the NBE can intervene by providing lending and deposit facilities to guide the rates back within the target range.

This ability to steer short-term interest rates through the Interbank Money Market helps the NBE to achieve its policy objectives. For the shared benefit of all commercial banks involved in the interbank money market, the NBE calls for full cooperation among market participants to ensure the successful implementation of the market and adherence to its code of conduct.