“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 a news conference in the capital Addis Ababa.
The International Monetary Fund (IMF) and the World Bank, have both repeatedly urged Ethiopia to consider devaluing its currency to boost exports as they are mostly unprocessed products and need to stay competitive on price.
Ethiopia has operated a managed floating exchange rate regime since 1992.
The Horn of Africa country 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.
Addis Ababa earned $2.9 billion in the 2017-2018 fiscal year, versus a target of $4 billion.
On Tuesday, the central bank also announced that it has raised the main interest rate to 7 percent from 5 percent to stimulate savings as well as to counter inflation.
“The rate was pushed to mitigate the inflationary pressure that could arise from the devaluation,” Yohannes said.
Ethiopia’s inflation rose slightly to 10.8 percent year-on-year in September from 10.4 percent a month earlier, according to figures released by the statistics office on Friday.
Ethiopia’s economy is one of the fastest growing in Africa, with the IMF expecting a growth rate of 9 percent for the 2016/17 fiscal year.
The expansion, however, has mainly been fuelled by huge public expenditure. The government has invested heavily in dams for hydroelectric power, new highways and an electrified railway linking the landlocked nation to a port in neighbouring Djibouti.
The IMF has said Ethiopia needs to attract more private sector investment to maintain growth. But Addis Ababa has in the past tended to brush off such advice and said it would keep charge of key sectors. (Reporting by Aaron Maasho; Editing by John Stonestreet and Andrew Heavens)