Ethiopia: Central Bank Cautions Middle East Tensions Could Upend Inflation Gains

opinion

By Kidus Dawit

The National Bank of Ethiopia's (NBE) Monetary Policy Committee has warned that supply shocks resulting from the war in Iran could reverse downward inflation trends.

In a statement released today following the committee's sixth meeting, regulators put the headline inflation rate for February 2026 at 9.7 percent, attributing success in taming inflation to tight monetary policies in place since August 2023, including a cap on bank credit growth.

However, the central bank warns that the war in Iran and closure of the Strait of Hormuz could undo progress.

"...the Committee noted that recent geopolitical tensions in the Middle East will exert upward pressure on global oil prices and will create disruptions in supply chains; thereby posing increased upside risks to the domestic inflation outlook," reads the statement.

The price of a barrel of crude has jumped to nearly USD 110 since the US-Israeli attacks on Iran began last month, pushing fuel costs to their highest levels since 2022.

The statement cites 9.2 percent GDP growth in 2024/5, lauding a tenfold increase in contribution from the booming gold mining industry and a balance of payments surplus last year and the first eight months of the current fiscal year.

The committee urged the NBE board to approve its recommendations for continued tight monetary policy, including keeping credit growth caps in place.

It will reconvene in late April to "evaluate whether additional policy measures are required," according to the statement.

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