The Monetary Policy Committee (MPC) of the National Bank of Ethiopia warns that fresh external shocks- escalating tensions in the Middle East- could derail recent progress on inflation.
In its latest assessment, the committee flagged growing upside risks to inflation, even as headline inflation eased to 9.7 percent in February 2026. The committee’s assessment comes amid a more uncertain global environment, where rising energy prices and geopolitical instability are expected to weigh on growth and complicate inflation management, particularly for import-dependent economies like Ethiopia.
The MPC noted that the return to single-digit inflation follows months of tight monetary policy, slower credit expansion earlier in the cycle, and improved supply conditions. According to committee data, food inflation has dropped sharply, while non-food price growth has also moderated.
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That progress, however, is now under pressure. The MPC highlighted that Ethiopia’s heavy reliance on fuel imports leaves it exposed to global price swings, noting that any sustained increase in oil prices is likely to feed into transport costs and consumer prices. The committee indicated that the scale of the impact will depend on how long the geopolitical tensions persist and how effectively domestic policy responses contain the shock.
Against this backdrop, policymakers on the committee opted to keep monetary policy tight, holding key settings unchanged and signaling little room for near-term easing.
The broader economic picture remains mixed. The MPC reviewed official estimates showing the economy expanding by 9.2 percent in the last fiscal year, with growth supported by services and a pickup in industrial activity, particularly mining. The committee observed that gold exports have strengthened external earnings, contributing to an improved balance of payments position.
At the same time, the committee’s analysis of monetary data points to continued pressure building in the system. While the MPC acknowledged that bank lending has grown rapidly, it also noted that liquidity conditions have tightened in parts of the banking sector, pushing interbank rates higher. Despite this, the committee described the financial system as stable, with manageable levels of non-performing loans.
Fiscal policy has stayed relatively restrained, with committee reports indicating that authorities are limiting direct central bank financing and leaning more on domestic debt markets. Still, the MPC noted that the budget deficit has widened compared to the same period last year, reflecting increased spending.
The MPC appears focused on preventing a reversal of recent gains, even if that means keeping financial conditions tight for longer.
