The Monetary Policy Committee (MPC) of the Bank of Sierra Leone recently met in Freetown under the chairmanship of the Governor, Bank of Sierra Leone, Mr.ShekuSambadeenSesay, to discuss Sierra Leone’s macroeconomic developments and their implications for monetary policy management as well as to review the Bank of Sierra Leone Monetary Policy Rate (MPR).
The Committee noted challenges facing budget execution during the year, as reflected in increased government borrowing, and commends efforts made by the fiscal authorities to implement prudent public expenditure management strategies to support monetary policy and achieve target objectives under the Extended Credit Facility (ECF) supported programme with the IMF.
According to a release from the Bank of Sierra Leone the Committee discussed developments in the real sector and noted that the Sierra Leone Business Confidence Survey report for Quarter 3 of 2012 reflected improvement in business sentiments during the Quarter compared to the previous.
The Committee noted that the improvement in business sentiments from Q2 to Q3 was underpinned by macroeconomic stability supported by the relative stability of the exchange rate and declining inflation.
The Committee also noted that as a result of the stable macroeconomic environment, there has been sustained inflow of foreign exchange across all sectors of the economy.
As of end November 2012, foreign exchange inflows to support real sector activity in the mining and agricultural sectors amounted to US$147.99 million and US$35.13 million, respectively. Total foreign exchange inflows to the banking system
Increased by 17.6 percent over the end-2011 level to an amount equivalent to 3
Months of import cover, which provides a buffer against adverse external shocks.
The release added that the MPC also discussed recent developments in consumer prices and noted that the national consumer price inflation has been declining since January 2012, from 16.83 percent (year-on-year) to 11.25 percent in October 2012 underpinned by the Bank’s tight monetary policy stance. Nonetheless, the monthly inflation rate increased by 0.91 percent against the backdrop of domestic demand pressure. Meanwhile, whereas the risk associated with the inflation outlook has evolved slightly more favourably since the last MPC meeting in September, reflecting a gradual moderation in global commodity prices, downside risks to inflation still exist.
The Committee further noted that interest rates in all segments of the money market have been declining following the commencement of redemptions of government treasury securities to bring domestic borrowing back on track. The Committee underscored the need for the Banks to continue to adhere to the limit on direct financing from BSL, which is an anchor for macroeconomic stability.
In view of developments in the global economy, current interest rate structure, inflationary expectations in the coming months, and the appropriateness of the Bank’s monetary policy stance, the Committee agreed to maintain the Monetary Policy Rate (MPR) at 20 percent but narrow the Reverse Repo Rate and the Standing Facility Rate corridors by 100 and 200 basis points respectively.
Hence, the following rates are published for information of the money market, effective Monday December 10, 2012 Monetary Policy Rate is 20%, Reverse Repo Rate is 21% (100 basis points above the MPR), Standing Facility Rate is 28% (800 basis points above the MPR) These rates will remain effective until the next MPC Meeting, the release concluded.