Ethiopia's Money Market Faces Divergent Interest Rates

Ethiopia's money market is experiencing significant discrepancies in interest rates this month. Commercial banks are lending to each other for seven days at 13%, while the four-week Treasury bill cleared at 1.95% in the latest auction. Surplus cash deposited with the National Bank of Ethiopia (NBE) for a fortnight earned 3.25%. These movements follow the Central Bank's July decision to raise its policy rate to 16%, abolish commercial bank credit growth ceilings, and cut export-surrender requirements from 50% to 30%.

Despite these policy adjustments, the weighted Treasury bill yield across all maturities fell from 11.6% in June to 5.36% in September. The four-week bill yield specifically dropped from 7% in June to 1.95% by mid-September. When measured against the 14.9% inflation rate recorded in September, this represents a negative real return of approximately 13 percentage points.