Freetown, SIERRA LEONE — The Central Bank, in its latest Monetary Policy Report, has revealed a substantial 17.7% expansion in Reserve Money (RM) during the second quarter of 2023. This growth represents a significant increase of 17.2% compared to the previous quarter and an impressive 57.3% growth on a year-on-year basis.
Reserve money, also known as high-powered money, base money, and central bank money, is recognized as the most crucial form of money supply. The report indicates that key monetary aggregates, including RM and Broad Money (M2), continued to exhibit rapid growth during the second quarter of 2023.
Data from the report highlights that the yearly expansion of RM surpassed the International Monetary Fund’s end-June 2023 program target of 34.1%. Additionally, the growth in RM exceeded the inflation rate, resulting in real RM growth of 8.6% year-on-year—marking the highest rate observed in the past two years.
A detailed breakdown in the report identifies the surge in RM as primarily driven by an increase in the Net Domestic Assets (NDA) of the Bank of Sierra Leone (BSL). The expansion of NDA is attributed to heightened government borrowing from the central bank to support fiscal operations.
On the liability side, the growth in RM was mainly propelled by the issuance of currency, while reserves deposited by commercial banks at the central bank showed only moderate growth.
In addition to RM, the report highlights a 2.6% growth in Broad Money (M2) during Q2-2023 compared to the previous quarter and a substantial 47.4% growth on a year-on-year basis. While the yearly growth in M2 surpassed the 38.3% assumed in the IMF/ECF program, the real growth in broad money was nearly negligible due to the offsetting impact of elevated inflation on nominal M2 growth.
The Central Bank’s report underscores the dynamic trends in money supply and the factors influencing these developments, providing valuable insights for policymakers and the public alike. ZIJ/28/11/2023