By Politico staff writer
The Monetary Policy Committee (MPC) of the Bank of Sierra Leone has increased the Monetary Policy Rate by 0.50 percentage points, to 19.25 percent.
This was according to a statement issued after a meeting of the committee on the 6th of July this year to review recent macroeconomic and financial developments in the global and domestic environments and their implications for domestic inflation and growth.
Following the deliberations, the statement noted that the MPC realized that the International Monetary Fund (IMF) has revised its global growth projections for 2023 and 2024 downward by 0.1 percentage points to 2.8 percent and 3.0 percent respectively. It noted that the global economic outlook remains uncertain despite the decline in food and energy prices, the re-opening of the Chinese economy, and general improvement in business and consumer confidence.
It also noted that downside risks still remain and continue to slow the rebound in global economic activities, which is further compounded by challenges in global trade, sovereign debt crises, and tightening of credit conditions. It however expected commodity prices to fall during 2023 and pick up in 2024.
The MPC further expected both energy and non-energy prices to slow down in 2023 due to weaker-than-expected demand, noting that there has been a decreasing trend in food prices with the ease in global supply chain disruptions and redirection of trade for agricultural inputs. It is of the view that the decrease in global food and energy prices, coupled with the improvement in global supply chains, is expected to reduce the country's import bill.
It pointed out that the increase in the inflation rate reflects the depreciation of the currency, the lingering effects of the Ukraine-Russia war, tight global liquidity conditions, and domestic supply-side constraints. It expected inflation to recede towards the end of 2023, consistent with the contractionary stance adopted by both the fiscal and monetary authorities, despite the aforementioned problems.
The committee projected Growth to slow down to 2.7 percent in 2023 from an initial estimate of 3.4 percent, due to less-than-expected improvement in mining output and uncertainties surrounding the other growth sectors, as well as the impact of the Russia-Ukraine war. It stated that the gross foreign exchange reserves of the Bank of Sierra Leone (BSL) remain sufficiently stable to cover at least 3.3 months of imports of goods and services.
“Although the Leone had depreciated against major international currencies in the review period, the exchange rate had been relatively stable during 2023 Quarter 2,” it said.
It viewed that with the decline in domestic revenue, implementation of policy measures to reduce discretionary spending and raise tax revenues while freeing up resources for priority expenditure should be accelerated.
The MPC noted with concern the concentration of credit to a few sectors in the market and urged commercial banks to increase credit to other sectors such as agriculture to support growth and development. It however stated that in order to support private sector growth and development, commercial banks should, both individually and collectively, modernize their business model to increase financial intermediation.
It acknowledges that current inflationary pressures pose a challenge to domestic macroeconomic stability and the potential impact on real household incomes. It underscores the importance of policy reforms in productive sectors of the economy particularly agriculture, to support aggregate supply for growth and development.
The MPC hopes to alleviate depreciation pressures and reduce inflation in the medium term for better coordination between fiscal and monetary policy, together with the expected financing from development partners. It assured that it will continue to monitor domestic economic developments and stands ready to act accordingly, signaling its intention to bring down inflation.
Copyright © 2023 Politico (14/07/23)
