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Ethiopia Doubles Reserve Ratio to Rein In Surging Inflation

Ethiopia doubled the statutory reserve requirement for commercial lenders and increased the amount of foreign currency they must remit to the central bank, in an effort to rein in inflation.

From Sept. 1, the reserve requirement will increase to 10%, according to Fikadu Digafe, the National Bank of Ethiopia’s vice governor in charge of monetary policy and its chief economist. Banks will also be required to transfer 50% of their foreign-exchange holdings to the central bank, compared with 30% previously, he said.

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The central bank plans to give lenders a local-currency equivalent of the amount of foreign money they remit, according to the directive. Banks were also requested to allocate 1% of their loan portfolios to buying debt issued by the government-owned Development Bank of Ethiopia.

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What will happen to the country's foreign-exchange reserve when Ethiopia is removed from AGOA?


Ethiopia has used Agoa, which gives most African states tariff-free access to some products into the US market, as a catalyst for its manufacturing strategy. It exported $245m worth of goods to the US under Agoa last year, more than 40 per cent of its total exports there.