MONROVIA – The Board of Governors of the Central Bank of Liberia (CBL), representing the Monetary Policy Committee (MPC), has raised the Monetary Policy Rate (MPR) by 250 basis points from 15% in the first quarter of 2023 to 17.5%, to contain further inflationary pressures, going into the third quarter of 2023. The Board, during the second quarterly MPC meeting of 2023, which was held on May 25, 2023, affirmed its decision to maintain the existing reserves requirement ratio (RRR) at 25% for Liberian Dollars and 10% for United States Dollars as part of its policy response to control the level of Liberian dollar in circulation.
The Board urged the CBL to maintain the existing Open Market Operations (OMO) policy, offering biweekly CBL bills exclusively to commercial banks, while allowing retail investors and commercial banks to subscribe to the monthly and quarterly CBL bills. The issuance of the bills supports the Bank’s effort to manage Liberian dollar liquidity in the economy and maintain macroeconomic stability. Beyond the CBL’s primary market activity, the Board encouraged the CBL to facilitate secondary market transactions to enhance liquidity management, highlighting that the limited secondary market activity required the CBL to rediscount its securities, which may undermine the efficacy of these monetary policy instruments.
By implementing these policy measures, the Board is confident that the CBL will contribute to macroeconomic stability in the face of persistent global economic uncertainties and domestic commodity price volatility.
The MPC’s policy decisions stemmed from the continued downward trend in global growth to 2.8% for 2023 from an estimated 3.4% in 2022, and 6.2% in 2021, while global headline inflation remains high at 7.0%, driven by supply-demand gaps. However, regional inflation projections are expected to moderate in the medium-term with inflation level in advanced countries expected to fall to 4.7%, and in Sub-Saharan Africa to 14% from 14.5%, in 2022.
Factors triggering the growth slump and heightened inflation include financial sector turbulence related to tightening financial conditions and elevated prices, which compounded the spillover effects of the Russia-Ukraine war and the lingering impact of COVID-19 pandemic. In Sub-Saharan Africa, slumping commodity prices took no insignificant toll. Policy rates have continued to rise worldwide, in response to these trends. While some ECOWAS countries followed suit, Liberia and The West African Economic and Monetary Union’s (UEMOA) monetary policy rates had remained unchanged during the quarter under review.
The Board, in recalling the slump in Liberia’s major export commodities price during the last quarter of 2022, was encouraged by the stronger than expected performance in global prices of those commodities, notably iron ore, rubber, and gold, along with round logs. The Real Gross Domestic Product (RGDP) of Liberia grew to an estimated 5.1% during quarter one of 2023, relative to the same period in 2022. The annual growth for 2023, however, is projected at 4.3%, down from the 4.8% estimate for 2022, on account of moderations in mining & panning and the forestry subsectors.
Domestic inflation projection remains a concern, at 8.7 percent +/- 2.0 percentage points, due to the existing tightening of global financial conditions and domestic structural constraints. However, the Board noted a moderation in the trade deficit to 4.5% of GDP during the quarter, down from 6.9% of GDP in the fourth quarter of 2022 and 5.5% of GDP in the previous quarter. This was attributed to a 16.0% rise in export receipts coupled with an 11.0 percent decline in import payments.
The Board noted the net remittance inflow through the banking system in the first quarter of 2023 rose by 33.1% to US$91.1 million, from US$68.5 million in fourth quarter of 2022, while inbound remittances terminating in mobile wallets grew by a projected 3.1% to US$94.6 million in quarter one 2023 from US$91.6 million in the fourth quarter of 2022.
The Board noted the mixed signals in interbank activity. Repo transactions were non-existent during the quarter. However, there was an outsized leap in interbank swap transactions from US$2.9 million in quarter four of 2022 to US$58.0 million in the reporting period, as banks sought to ease the liquidity disparity for their international and domestic transactions.
The Bank will continue to closely monitor developments in the global economic environment and where necessary respond timely within the scope of its mandate.
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