This is the story of Daniel Shambel, a famous Physics teacher!

A man who gained recognition by teaching physics and mathematics online in a simple way says teaching is his calling in life.

National Bank’s tight monetary policy has led to a slowdown in inflation in recent months - National Bank of Ethiopia Monetary Policy Committee 

#Ethiopia | The National Bank of Ethiopia’s monetary policy has led to a slowdown in inflation in recent months, the Monetary Policy Committee of the National Bank of Ethiopia said. 

The committee said that improving agricultural production and the gradual implementation of the reform in administrative prices were other factors that contributed to the record result. 

Food inflation reached 14.6 percent at the end of February 2017, which is significantly lower than the 3 percent in the same period last year. 

Similarly, non-food inflation, which decreased to 15.6 percent from the previous year, has shown signs of slowing down in the past few months. 

The full report of the Monetary Policy Committee Meeting No. 2 is as follows: 

The Monetary Policy Committee of the National Bank of Ethiopia held its second meeting on March 16, 2017.

The Monetary Policy Committee, established in accordance with the functions and responsibilities assigned to it by the Bank’s Establishment Proclamation No. 1359/2025, Article 23, as amended, shall submit to the Board of Directors of the Bank monetary policy recommendations consistent with the Bank’s primary objective of stabilizing prices and supporting economic growth. 

In this regard, the Committee shall review Ethiopia’s inflation, fiscal, external economic, money supply and financial sector activities, as well as international developments that have significant implications for domestic macroeconomic conditions. 

The Committee shall provide policy recommendations for monetary policy implementation based on these macroeconomic assessments and recent forward-looking statements.

Accordingly; The key issues reviewed by the Committee are as follows:

Inflation: The Committee noted that since the last Monetary Policy Committee meeting, annual inflation has been declining and reached 15.0 percent at the end of February 2017. The continued decline in inflation over the past few months is attributed to the National Bank’s tight monetary policy, improved agricultural production and the gradual implementation of the reforms in administered prices. 

Food inflation stood at 14.6 percent at the end of February 2017, significantly lower than the 3 percent recorded in the same period last year. Similarly, non-food inflation, which declined to 15.6 percent from the previous year, has shown signs of slowing down in the past few months. 

The monthly growth rate in February 2017 was 0.5 percent, the lowest in four consecutive months and a sign that the impact of inflation on the economy is low.

Growth and Economic Activity: The Committee noted that domestic economic activity indicators point to a strengthening trend. Favorable monsoon rains in most parts of the country and ongoing supply-side reforms in the agricultural sector suggest a robust crop production this year. In other sectors, growth is expected to be robust, particularly in industry, merchandise exports (particularly coffee and gold), and services exports (particularly air transport and tourism).

Monetary Conditions: Monetary growth has picked up slightly since the last Monetary Policy Committee meeting. This was due to the easing of credit, fiscal and external conditions. As of January 2017, broad money supply in the economy grew by 22.8 percent, base money by 42.0 percent, and domestic credit by 19.8 percent. The rapid growth in base money was due to the National Bank of Ethiopia’s high foreign exchange reserves from gold sales and

Interest Rate Situation: The Committee noted that market-based short-term interest rates have for the first time exceeded inflation. For example, the 364-day Treasury bill rate increased from 15.9 percent at the end of December to 17.7 percent at the end of February 2017. 

The average interest rate in the interbank market reached 16.7 percent in February, which is within the 15 percent interest rate range set by the National Bank (3 percentage points above or below). The volume of interbank transactions continued to grow rapidly and reached Birr 338.8 billion at the end of February 2017.

Banking and Financial Sector Stability: The Committee assessed the banking sector as sound and stable with low non-performing loans and adequate capital. However, some banks are experiencing liquidity shortages. This is due to the high loan to deposit ratio of some banks. However, the introduction of the Interbank Money Market and the permanent credit facility through the National Bank are addressing the problems of some banks.

Fiscal Situation: A prudent fiscal policy framework continues to be implemented. The existence of strict fiscal discipline has been a major factor in preventing the use of loans from the National Bank to finance the budget deficit in the current fiscal year and has provided significant support to the monetary policy stance of the Central Bank.

External Economic Sector: The Committee noted that the external economic sector has shown significant improvement. As a result, the current account showed a surplus in the first half of the fiscal year due to the significant growth in the goods and services trade and remittances, as well as the capital account, due to the foreign exchange rate adjustment made in July 2016; this has also led to an increase in foreign exchange reserves.

International Conditions: The global economic growth is expected to continue to strengthen in 2025 and 2026, with a growth rate of 3.3 percent, according to the International Monetary Fund’s January data. In contrast, global inflation is projected to decline to 4.2 percent in 2025 and 3.5 percent in 2026. However, recent geopolitical developments and uncertainties could exacerbate inflation as they impact global tariffs and trade.

The current global commodity price environment is generally favorable for our country. For example, while oil prices have declined by 9 percent since the start of the fiscal year, the prices of major exports (coffee and gold) have increased to record highs, contributing to an improvement in the balance of payments.

Monetary Policy Committee Review and Decision

Although recent inflation trends have been encouraging and have been on a downward trend, the Monetary Policy Committee has recognized that a tight monetary policy stance is still necessary as inflation remains high and above the single-digit target in the medium term.