Money supply

Reserve money grows 87% in a year, and the central bank points to its own gold buying

Maallaqni kuusaa waggaa tokkotti 87% guddate; Baankiin Biyyoolessaa bittaa warqee ofii isaa akka sababaatti kaase

Posted 25 Tikimt 2019 E.C. · 06:00 EAT (12:00 Ethiopian time) · Published by Ensight (Mo Creatives)

Reserve money, the cash and bank reserves the central bank itself creates, grew 87.2% in the year to September, up from 72.6% a year earlier, and broad money grew 40.2%. The National Bank of Ethiopia named its gold operations as a major contributor. With banks holding large excess reserves, short-term interest rates have been negative after inflation since May, and the bank says it will drain the surplus through open-market operations.

The amount of money created directly by the National Bank of Ethiopia is growing faster than it was a year ago. Reserve money, the notes and coins in circulation plus the reserves commercial banks keep at the central bank, grew 87.2% in the year to the end of the first quarter of the 2026/27 fiscal year, which ran from July to September. A year earlier the rate was 72.6%. Broad money, which adds the deposits people and firms hold at banks, grew 40.2%.

The figures were set out at the bank's Monetary Policy Committee meeting on 3 November, the same meeting that held the policy rate at 16%.

Gold is the main reason

The committee named the bank's gold operations as a major contributor. When the central bank buys gold from miners and traders, it pays in newly created birr, and that money lands in the banking system. Gold has become the country's largest export: US$5.65 billion of a record US$10.7 billion in goods exports in the year to July (our analysis). Buying it adds to the foreign-currency reserves Ethiopia needs, but it also adds to the money supply.

Cheap short-term money

Banks now hold large excess reserves at the central bank, and the surplus shows in short-term interest rates. Treasury bill yields and interbank money-market rates kept falling, and have been negative after inflation since May 2026, according to the committee. That means short-term money is cheaper than the 16% policy rate suggests, which weakens the rate's grip on inflation.

What the bank will do

The bank said it will keep relying on indirect tools, mainly open-market operations, to absorb the excess liquidity. It will also keep setting targeted reserve requirements for banks whose loan-to-deposit ratios show credit growing fast enough to fuel inflation.

How quickly the surplus can be drained, while gold purchases keep adding to it, will decide whether the bank's forecast holds: inflation falling over the next six months, but staying above 10%.

Source: National Bank of Ethiopia, Monetary Policy Committee, 3 November 2026; export figures from the Ministry of Trade and Min · see the source

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