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Governor Mamo Mihretu has announced a rework of the National Bank of Ethiopia’s (NBE) monetary policy, shifting from the regulator’s long held intervention-based regime to one guided by a policy interest rate.

The National Bank Rate (NBR) will be used as the “primary means of signaling [the central bank’s] policy stance and influencing broader monetary and credit conditions,” according to a statement released by the NBE today.

The Governor has set the initial NBR, or the rate at which the central bank will lend to commercial banks, at 15 percent. It is lower than the average commercial lending rates of around 18 percent.

Banking industry insiders say borrowing from the NBE is often only done as a last resort in times of low liquidity.

The NBE will begin conducting bimonthly monetary policy related auctions, dubbed Open Market Operations, as a tool to supply or withdraw liquidity from the banking system. The first of these auctions is scheduled to take place later this week, according to the statement.

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Mamo and his team of regulators are gearing up to introduce an electronic interbank money market that would allow commercial banks to actively lend and borrow from one another.

Overnight lending and deposit facilities will also be availed to commercial banks that “might need to manage their liquidity positions over just a one-day horizon,” according to the statement.

#Central #Bank #Revamps #Monetary #Policy

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