Ethiopia's Money Market Shows Disparate Interest Rates Amid Inflation

The Ethiopian money market is currently seeing four different interest rates for the same Birr. Interbank lending for seven days stands at 13 percent, while the four-week Treasury bill yield dropped to 1.95 percent. Meanwhile, surplus cash parked with the National Bank of Ethiopia for two weeks earns 3.25 percent. These figures contrast with the Central Bank's policy rate, which was raised to 16 percent in July.

The Central Bank also lifted the commercial bank credit growth ceiling and reduced the export surrender requirement from 50 percent to 30 percent in July. Despite these adjustments, the weighted Treasury bill yield fell significantly from 11.6 percent in June to 5.36 percent in September. Given the September inflation rate of 14.9 percent, investors holding these government securities are effectively facing a negative real return of approximately 13 percentage points.