- Bank of Sierra Leone
By Winifred Hannah Koroma
The Monetary Policy Committee (MPC) of the Bank of Sierra Leone has said that growth prospects for 2013 remain bright supported by buoyant activities in the mining, agricultural and service sector but that fluctuations in electricity supply pose risks to business activities in the country.
A statement released by MPC yesterday noted that output in the mining sector recorded higher levels than anticipated for the first half of 2013, the projected 13.3 percent growth in real GDP remains achievable. Additionally, the Business Confidence Index for Q3 2013 was above the threshold suggesting optimism by the business community on the state and outlook of the economy underpinned by macroeconomic stability, but nonetheless, inconsistencies in electricity supply threaten business activities.
The MPC, according to the release, met on Thursday, 5th December under the Chairmanship of the Governor of the Bank of Sierra Leone, Sheku Sambadeen Sesay, to discuss recent macroeconomic developments and their implications for monetary policy management, as well as to review the Bank’s Monetary Policy Rate (MPR).
The Committee also noted that export data for the period January to October 2013 revealed increased export performance compared to the corresponding period in 2012. This development, coupled with significant foreign exchange inflows, particularly into the mining and agriculture sectors, it said, contributed to the relative stability of the exchange rate. “Foreign Direct Investment (FDI) inflows over the year increased significantly by US$76.68mn to US$238.68mn in October 2013. The outlook in the foreign exchange market points to continued stability of the Leone relative to the US dollar,” it said. The remainder of the statement reads:
The Committee also discussed recent developments in consumer prices and noted a year-on-year decline in the National Consumer Price inflation rate from 10.11 percent in August 2013 to 9.38 percent in October 2013. It was also noted that with the Freetown old series, inflation declined from 9.34 percent in August, 2013 to 8.93 percent in October 2013. Both food and non-food inflation rates declined during this period. The declining trend in inflation reflects moderation of international food and fuel prices, increased domestic food supply, stable exchange rates, and prudent fiscal and monetary policies. Regarding the outlook for inflation, the Committee envisages food inflation to continue to decline, bearing in mind the anticipated good agricultural output and stable prices of non-food items in the coming months.
The Committee noted efforts being made by the fiscal authorities to implement prudent expenditure management strategies as well as strong revenue enhancement measures by the National Revenue Authority coupled with anticipated significant inflow of external budgetary support, to ensure the achievement of target objectives under the new IMF ECF-supported program.
The committee noted that growth in Reserve Money was within the 2013 program target. However, the reduced borrowing by Government during most part of the year has culminated in declining trend in yields across all tenures of Government securities. The Committee also noted that the prime lending rates of commercial banks are trending downwards but slower than anticipated. The Committee therefore resolved that the Bank remains vigilant and intervenes in the money market to sterilize excess liquidity when necessary whilst at the same time encouraging the Commercial Banks to enhance financial intermediation and extend innovative credit products to their customers.
In concluding, the Committee, in its assessment of inflationary pressures in the months ahead, noted the relative stability in international commodity prices as well as the increasing domestic food supply and concluded that the outlook for inflation is favourable. The Committee therefore decided to reduce the Monetary Policy Rate from 12 percent to 10 percent, in order to accommodate the anticipated seasonal increase in demand for money, which should be consistent with the moderation in inflationary pressures. Hence, effective Monday December 9, 2013, the following rates are published for the information of the money market: Monetary Policy Rate is 10%; Reverse Repo Rate is 10.5% (50 basis points above the MPR); and Standing Facility Rate is 11.0% (100 basis points above the MPR).
These rates will remain effective until the next MPC Meeting.