Monetary policy
A policy rate 0.9 points above inflation: how tight is 16%?
Dhalli imaammataa qaala'iinsa gatii qabxii 0.9'n caala: 16% hammam cimaa dha?
Posted 9 Tikimt 2019 E.C. · 08:00 EAT (2:00 Ethiopian time) · Published by Ensight (Mo Creatives)
The National Bank Rate has stood at 16% since 13 July. Headline inflation was 15.1% in the year to August, the latest reading on the data page, which leaves a real policy rate of about 0.9 percentage points: positive, but only just. The monthly figures tell a more useful story. Prices rose 0.9% in August against 2.6% in July. Compounded over a year, August’s pace would be about 11% and July’s about 36%, so whether policy is tight depends on which month is the trend.
The claim
At 16%, the National Bank Rate is tight enough to bring inflation down.
- Education25.3
- National Bank Rate16
- Non-food15.4
- Headline inflation15.1
- Food14.9
- Headline, August 202513.6
Source: Ethiopian Statistical Service; National Bank of Ethiopia
The figure that tests it
The simplest test of a policy rate is whether it sits above inflation. Headline inflation was 15.1% in the year to August, down from 15.3% in July but above the 13.6% of August 2025 (inflation). Against a rate of 16%, that leaves a real policy rate of about 0.9 percentage points, an Ensight calculation. Positive, but thin: one bad month would erase it.
Underneath, the spread is wide. Food rose 14.9% and non-food 15.4%. Education, at 25.3%, is the fastest single component and sits above the policy rate by 9.3 points.
The month is the better guide
Annual inflation looks back twelve months. The monthly figure says more about now. Prices rose 0.9% in August after 2.6% in July. Compounded for twelve months, August’s pace would give about 11% and July’s about 36%. That arithmetic is illustration, not forecast, but it shows why one month cannot settle the question.
What it means, and for whom
For borrowers, a real rate near zero means credit is not yet expensive in real terms. For savers, deposits that pay less than 15.1% are still losing value. And birr are scarce in another way: the foreign exchange auction went undersubscribed for the first time, which analysts linked to a birr liquidity squeeze (the auction).
What would change the view
A change in the National Bank Rate; two or three more months near August’s 0.9% pace, which would widen the real rate as annual inflation falls; or a return to July’s 2.6%, which would mean 16% is not enough.
Source: Ensight, from National Bank and Statistical Service figures
Report an error in this story · How we correct · Light version