By Sulaiman Aruna Sesay
The Bank of Sierra Leone (BSL) through its Monetary Policy Committee (MPC), held a meeting on 24 June 2024 to deliberate and assess the recent global and domestic macroeconomic and financial market development, and risks to outlook for domestic inflation and growth.
The meeting chaired by the Bank Governor, Dr. Ibrahim L. Stevens, deliberations resulted to the increase of Monetary Policy Rate (MPR) by 1 percentage point to 24.25 percent. The MPC highlighted a summary of the assessment and key considerations that informed the Committee’s decision on the monetary policy stance are as follows:
The Global Economic Developments: Global economic activity continues to be resilient amidst sustained tight monetary policy in most Advanced Economies and Emerging Markets and Developing Economies. According to the April 2024 International Monetary Fund (IMF) World Economic Outlook (WEO), global growth is projected to remain strong at 3.2 percent in 2024 and 2025.
The report observed that Global inflation continues to ease especially in advanced economies and some emerging markets and developing economies. According to report, it is projected to decline steadily due to tighter monetary policy stance, softening labour market conditions, and diminishing effects of past global shocks. The MPC noted that the resilient growth and steady decline in inflation in the global economy provide a favourable external environment for Sierra Leone in terms of trade and foreign direct investment flows.
For the Domestic Economic Developments Growth Outlook, the real GDP growth is estimated to rebound to 4.0 percent in 2024 from a moderate growth of 3.4 percent in 2023. According to report, the expected growth is to be driven by increased activity in agriculture, mining, and services sectors. The report added that the BSL’s Composite Index of Economic Activities (CIEA) recorded a faster increase in economic activity in 2024Q1, compared to 2023Q4. The growth is estimated to remain resilient in the medium term due to monetary and exchange rate stability and the government’s continued effort to diversify the economy.
The Inflation since 2024Q1 IMPC meeting have continued to soften. According to report, the Headline inflation decreased from 40.69 percent in March 2024 to 38.06 percent in April 2024 and further to 35.84 percent in May 2024. The MPC noted that the decline in headline inflation was broad-based as there were reductions in the prices of both food and non-food items of the consumer basket. This decline was attributed to a combination of factors, including the sustained tight monetary policy stance characterized by successive well-calibrated increases in the monetary policy rate, the stability of the exchange rate which restored confidence in the domestic currency, increased domestic food production due to the harvest season, expenditure rationalisation by the fiscal authorities, and decline in international food and energy prices.
The report highlighted that the Fiscal policy remained tight as the government sought to pursue fiscal consolidation to address challenges with public finance. He added that the overall balance registered a deficit of NLe1.21 billion in 2024Q1 compared to a surplus of NLe0.39 billion recorded in 2023Q4 driven mostly by debt service payments. In spite of the improvement in domestic revenue mobilization, the significant reduction in foreign grants resulted in a decline in total revenue. The report observed that the primary balance recorded a surplus of NLe0.03 billion in 2024Q1 compared to the surplus of NLe0.28 billion recorded in 2023Q4 on account of increased discretionary spending.
According to the Financial System Stability, the banking sector continue to be relatively stable, profitable, liquid, and adequately capitalized with all key Financial Soundness Indicators (FSIs) within acceptable thresholds. This stability was further validated by the BSL’s assessment of regulatory returns submitted by commercial banks. The report stated that the Bank welcome the resilience of the banking sector. The MPC observed that the income from the government securities constituted the largest portion of banks’ earnings and a potential decline in yields in the event of lower borrowing by government poses severe risk to the sector. The MPC is concerned about the spread between banks’ lending rates and deposit rates which remained significantly high and undermines the transmission of monetary policy.
