Ethiopia will remove its long-standing cap on bank lending, a landmark reform expected to release 1.3 trillion birr (US$ 21.9 billion) into the economy, officials at the Ministry of Finance announced.
The policy shift will allow banks to expand credit supply in line with market demand, ending years of quantitative restrictions that capped annual credit growth at 18%.The new lending volume represents a 500 billion birr increase compared to last year, signaling a government push to broaden financial access for businesses and households.Finance Minister Eyob Tekalign confirmed the move, emphasizing that safeguards are in place to prevent runaway inflation.
“The release of such a large volume of credit must be accompanied by prudent monetary oversight to ensure that it does not overheat the market,” he said.
Ethiopia has battled persistent double-digit inflation, with food prices and currency depreciation straining households. Analysts warn that while more liquidity could support investment, it risks stoking demand-side inflation unless carefully managed.
The Ministry of Finance said that it is working closely with the National Bank of Ethiopia (NBE) to phase in the credit expansion, including stricter reserve requirements, market-based interest rate adjustments, and enhanced supervision of bank lending practices.
Minister Eyob added that the key is balance, and that the ministry must support growth and private investment while maintaining discipline in monetary policy.
The easing of the credit ceiling is expected to unlock financing for sectors seen as critical to Ethiopia’s growth strategy- manufacturing, construction, and agriculture. Households may also benefit from improved access to mortgage and customer loans, though regulators remain cautious about over-leveraging risks.
Officials say the reform reflects a broader transition from blunt quota-based controls to a modern, market-driven framework. The NBE is preparing to anchor lending conditions on interest rates, liquidity management, and fiscal coordination, in line with International Monetary Fund (IMF) recommendations.
Market reports indicate that the central bank has maintained its policy rate at 15% while shifting government financing to auction-based Treasury bills, ensuring that prices- not quotas- guide credit allocation.