The Central Bank of Ethiopia devalued the local currency, the Ethiopian birr by 15% in a move meant to boost the country’s lagging exports. The devaluation pegs the Birr at 26.91 to the dollar, up from 23.40 Br on the official market.
Ethiopia has been operating a managed floating exchange rate regime since 1992.
The central bank also raised the main interest rate by 200 basis points to 7 percent from 5 percent to stimulate savings as well as to counter inflation.
“The devaluation was made to prop up exports, which have stagnated the last five years owing to the birr’s strong value against major currencies,” Yohannes Ayalew, the bank’s vice governor, told reporters in Addis Ababa.
Ethiopia is the continent’s biggest coffee exporter but its total export revenue has been falling short of targets for the last few years owing to weaker commodity prices.
“Since investment return is high in Ethiopia, the devaluation won’t cause an inflationary pressure and adversely affect import,” according to the Deputy Governor.
The measure is seen by economic players as helping to boost the growth of the country’s export sector which has experienced a sluggish outlook. It is also expected to reduce Forex shortages and to ease debt burden.
The IMF has previously mentioned that Ethiopia needs to attract more private sector investment to maintain growth which has been brushed off by the government maintaining its position in controlling most of the key sectors.
Source; Reuters