MONROVIA — The Central Bank of Liberia's (CBL) Monetary Policy Committee (MPC), consistent with its mandate to achieve and maintain domestic price and financial stability, has decided to lower the Monetary Policy Rate (MPR) from 20% to 17.5% and maintain the current reserve requirement ratios of 25% and 10% for Liberian and US dollars, respectively.
Domestic and global macroeconomic developments informed the MPC's decisions during the second quarter of 2024.
Global Developments
The MPC noted that the Russian-Ukraine War and lingering pandemic effects had led to inflationary pressures and tight monetary policies globally, leading to a projected 3.2% Real Gross Domestic Product (RGDP) growth that was triggered mainly by the euro area, the United States and emerging market economies. Although faring better than in 2023, economic growth in sub-Saharan Africa is projected at 3.7% in 2024, tampered by debt servicing obligations, funding squeeze and weaker than expected growth outturn in Nigeria.
Global headline inflation, the MPC noted, continued to moderate from 8.7% in 2022 to 6.8% in 2023 and is expected to further decline to 5.9% in 2024. Notwithstanding this, headline inflation in low-income countries is projected to remain high, moderating to 15.3% in 2024, compared to 16.2% in 2023.
The Committee noted that developments in commodity prices were mixed. Round logs and rice prices declined, while all other prices for selected agricultural commodities (cocoa bean, coffee, palm oil, rubber) rose. Gold and crude oil prices rose, but iron ore prices declined compared to the first quarter of 2024.
Domestic Macroeconomic Developments
Headline inflation declined from 10.2% in the first quarter of 2024 to 7.4%, reflecting moderating prices in food & non-alcoholic beverages and recreation and culture, with an expectation that the trend will continue downward to 6.5% in quarter three of 2024, mainly on account of the Bank's tight monetary policy stance.
The banking sector remained capitalized and liquid, with total loans and advances, total assets (gross), total deposits and total capital increasing by 5.4%, 4.7%, 9.6% and 4.0%, respectively, compared to the first quarter of 2024. There was a marginal decline in non-performing loans (NPLs), although the current 17.8% is still above the minimum regulatory limit of 10.0%. The banking system's ratio of interest-bearing liabilities to assets was 51.0%, while its repricing gap was positive, suggesting that the banking system is profitable and less affected by interest rate risk.
The MPC observed a rise in private sector credits in Liberian dollars by only 2.42% compared to a 6.2% rise in US dollar credits to the private sector and was concerned that the US dollar component of credits to the private sector was 94.0% while the Liberian dollar component accounted for only 6.0%, thus highlighting the persistent dollarization of the Liberian economy.
The monetary aggregates for quarter two 2024 showed growths in broad money (M2), narrow money (M1) and quasi money. Contrary to the expansion in M1, currency in circulation (CIC) contracted by 2.0% on account of the decline in currency in banks by 17.0%. Currency outside banks (COB) contracted marginally by 0.2% at end-June 2024.
Subscription to the CBL Bills, as noted by the MPC, slightly declined during the quarter. Total issuance declined by 3.0% due to 3.1% decline in institutional subscriptions and 1.7% decline in retail investor subscriptions. The Committee was also concerned that transactions in the interbank market was weak, characterized by single SWAP and REPO valued at US$2.0 million and US$3.5 million, respectively.
The MPC observed a contractionary fiscal policy in quarter two relative to the first quarter of 2024, noting a 1.6% of GDP contraction from a relatively smaller contraction of 0.27% of GDP in quarter one 2024. However, it was observed that the contractionary fiscal policy of government helped to lower the output gap and moderate inflation during the quarter.
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During its deliberation, the MPC was concerned with the worsening trend of the trade deficit to 5.0% of GDP due to an 11.0% estimated growth in import payments despite the 19.4% increase in exports receipts. Gross international reserves (GIR) declined by 6.4% to US$416.6 million partly on account of a decline in foreign liquid assets, including Special Drawing Right (SDR) holdings, and repayments of the IMF obligations from previous disbursements, thus reducing the imports cover of the GIR to 2.1 months relative to the 2.3 months recorded in quarter one of 2024.
Considering the above, the CBL reassures the public that it will continue to monitor developments in both the domestic and global economies. This will be done in accordance with the MPC's mandate to implement policies that ensure the stability of the Liberian economy.
