BY AHMED MOHAMMED
It is now days since the National Bank of Ethiopia has introduced a reformed monetary policy framework, which, according to economists, targets mainly at keeping inflation under control.
The decision would also enforce other commercial banks to readjust their loan growth, according to the new reform.
It has still been making the headlines both to local and international media houses.
The the new policy framework has adopted an interest-rate-based monetary policy regime, which has considered international best practices to ensure price stability and foster economic growth - a major switch from the previous credit ceiling policy. But what are further benefits, the reformed policy framework would have in store for the country, and what are the take of economists toward the new development?
A senior researcher at the Ethiopian Economic Association, Tasew Tadesse, says the newly adopted monetary policy framework is of paramount importance and will play huge roles at stabilizing prices.
The reforms, he says, “are in line with modern central bank practices and more consistent with an increasingly dynamic and market-based financial system.”
The policy interest rate, named as the National Bank Rate (NBR), will be raised or lowered depending on prevailing inflationary and monetary conditions, which according to the researcher, will help the economy to act accordingly.
He further detailed that the newly set initial interest rate of 15 could be instrumental as a means to create an interbank market for currency transactions and would further influence broader monetary and credit trading.
The researcher hailed the reform, which he says, came into play to adapt with the current macroeconomic dynamics of the country, such as inflation, growth of money supply and loans given by banks.
He also noted that the platform will also further help facilitate continuous lending and borrowing among banks, enhancing liquidity management without central bank intervention.
“An overnight lending facility and an overnight deposit facility is also part of the reform, allowing commercial banks to manage their liquidity over the one-day horizon,” he elucidated.
He stressed boldly that sustainable peace, agricultural productivity, solving deficits of foreign currency, will not be addressed and guaranteed unless viable monetary reforms of such kind are introduced and translated.
The NBE said the policy framework would help address the long-standing macroeconomic challenges, ensuring price stability and fostering economic growth in the East African country.