CBL moves by prospect for economic growth, retains existing monetary policy measures
At its first Monetary Policy Committee meeting of 2022, the Board of Governors of the Central Bank of Liberia (CBL), proxying for the Monetary Policy Committee (MPC), voted to retain the existing monetary policy stance, with the view to safeguarding financial and macroeconomic stability.
Over the next three months the monetary policy rate will remain at 20 percent, with an upper band of +500 basis points for standing credit facility, while the reserve requirement thresholds will remain at 25.0 per cent for Liberian dollars and 10.0 percent for United States Dollars.
The factors that played an important part in reaching these latest monetary policy measures included an inflation forecast of 7.4 percent with a bank of +\- 2.0 percentage points and a projected 4.7 percent Real Gross Domestic Product (RGDP) growth for 2022. Global economic developments also influenced the Board’s latest monetary policy decisions.
Global Macroeconomic Developments
The CBL Board of Governors took note of the fall in the prices of Liberia’s main exports, i.e., iron ore, rubber, and round logs, as well as the projected rise in inflation in advanced and developing economies. Inflationary pressures were particularly acute in sub-Saharan Africa, rising to an estimated 10.7 percent, from 10.3 percent in 2020.
The Domestic Economy
The Board of Governors was optimistic of the projected 4.7 percent RGDP growth for 2022 on account of growth projections of 4.5 percent within the mining & panning subsectors, 3.3% for the agriculture & fisheries subsectors, and 4.2 percent for the forestry subsector. Growth projections of 4.6% within the manufacturing subsector and 6.0 percent in the services subsector also formed the basis for the Board’s RGDP forecast, although this optimism was tempered by COVID-19 uncertainty and a rise in the price of crude oil.
Inflation, which dropped to 5.1 percent in Quarter Four, is however projected to increase to 7.4 percent with a bank of +\- 2.0 percentage points, still within single digits.
Liberia’s balance of payments improved in Quarter Four of 2021 due to a reduction in import payments, thereby offsetting the fall in export earnings. Another favorable development was the net inflows of remittances of US$107.0 million. All of these developments in Liberia’s balance of payments, the CBL Board of Governors observed, have contributed to the strong performance of the Liberian dollar, which appreciated by 15.0 percent in December 2021.
The Banking Sector
CBL’s Board took note of the decline in total loans and advances, assets, capital, and deposits, and was concerned that 84 percent of loans continue to be concentrated in five sectors, rising from 81.6 percent in the previous quarter, noting also the low extension of loans and advances to the agriculture and manufacturing sectors.
Non-performing loans (NPLs) continue to be a challenge, undermining the stability of the financial system.
The records showed an increase in currency in circulation and outside banks by 9.0 percent and 8.3 percent, respectively, both of which are factors that impact the projected rise in inflation for the first quarter of 2022.
Monetary Policy Decisions & Public Engagement
Inflation and RGDP forecasts, local currency stability and monetary aggregates in the wake of the currency changeover were issues of concern that guided the Board of Governors’ recent deliberations, after which it opted to retain the earlier monetary policy decisions in the interest of financial stability and a strengthened macroeconomic environment over the next quarter.
A nationwide public awareness campaign is now underway to inform the public about the currency reform process as well as engage relevant stakeholders on policies to sustain financial stability.