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Politics News

Tough times ahead

-Liberians warned

Amid current economic hardship, Liberians are being warned to brace themselves for more tough times ahead, the Central Bank of Liberia alerts here.
The Executive Governor of the Central Bank of Liberia (CBL) Nathaniel Patray has warn Liberians to prepare themselves for a tough time as the country economic suffers depreciation.

The Bank sounds the warning Thursday, 11 July during the launch of a public dialogue dubbed Economic Forum under the title: “Taking Stock of the Central Bank of Liberia Monetary Policy Regime and Operations.”

This is not what a nation retrogressing to grinding poverty and severe hardship wants to hear, but outgoing Executive Governor of the Central Bank of Liberia Nathaniel R. Patray, III who launched the maiden edition of the Forum, which is expected to be a series of public discussions on the Bank’s monetary policy, says the CBL continues to implement the Remittance Split Policy (RSP) as key instrument for building Gross International Reserves (GIR) for the purpose of withstanding unexpected external shocks to the economy.

He says the Forum comes at a time when the CBL is transitioning from an exchange rate targeting to interest rate targeting framework, as part of the process of modernizing its monetary policy operations.

Governor Patray asserts that defining the monetary policy framework of any country is largely influenced by its exchange rate regime and policy, noting that Liberia being a highly dollarized economy has significantly influenced both the exchange rate regime and monetary policy framework, and to a large extent, limited the monetary policy function and operations of the CBL over the past years.

He adds that as a result, the monetary policy framework of the Bank has been classified to be exchange rate targeting over the years, while its exchange rate policy has been classified largely as managed float (IMF would call it ‘other managed’).

He also explains that the adoption of an interest rate targeting framework in the medium-term will make interest rate as an effective channel of monetary policy transmission, saying, this will require developing the monetary and financial markets, which is a matter of priority for the Bank.

Liberians generally look forward to workable prescriptions that would reverse the current dismal trend of the economy to enable them put food on the table adequately and take care of other basic needs. The deterioration of the economy is largely derived from rapid depreciation of the Liberian dollars and an inverse increase in prices.

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But Governor Patray argues that it is important to note that issues of exchange rate stability and price stability, in as much as they are monetary phenomena, require collective effort of all key policy stakeholders.

He notes that as enshrined in the government development blueprint, Pro-Poor Agenda for Prosperity and Development (PAPD), the key role of the CBL is to promote price stability (“I should add in concert with all stakeholders”) which is critical in ensuring conducive microeconomic environment.

He expresses the CBL’s commitment to taking the Forum to the larger society, adding that “inflation trended downward in Q1 2019 to 22.8 percent from 28.4 percent in Q4 2018.

Inflation remains high above long term trend (far above the ECOWAS convergence criterion of single-digit) mainly due to exchange rate depreciation and structural issues. Forecast of inflation for Q2 2019, though slightly high, is below the 22.8 percent recorded in March 2019, on account of favorable commodity prices. However, inflation is expected to rise beginning the last month of the quarter due to likely depreciation of the Liberian dollar as a result of increased demand for foreign currency.”

The Governor explains that sources of inflationary pressure include the pass-through effect of the depreciation of the Liberian dollar due to a relatively high Liberian dollar liquidity (about 92 percent of currency outside the bank) and high dependence on imported commodities (over 80 percent) which puts high demand on foreign exchange;

surcharges on petroleum products; arbitrage practices by some businesses for profiteering; and infrastructural challenges, as well as high energy and utility costs.
For his part, Mr. P. Mah Kruah, Assistant Director for Statistics, Research, Policy and Planning at the Central Bank of Liberia says given these challenges, the effectiveness of the CBL Monetary Policy is gravely constrained.

However, he notes, that serious works are ongoing to improve the Monetary Policy Operation of the Bank, establish a Financial Market Department to facilitate and deepen the Money and Capital Market.

He names revision of the CBL Act to reflect greater independence ; re-design of the Monetary Policy Framework and Operation; introduction market –base Monetary Policy instrument or Standing Facilities, as some steps necessary to resuscitating the economy.

Mr. Kruah also points to establishment of Microeconomic Forecasting and Analysis unit at the Bank to enhance robust model-based Monetary Policy Analysis.
The forum brought together participants from several banking institutions here. By Emmanuel Mondaye–Editing by Jonathan Browne

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