By zainab.joaque@awokonewspaper.sl
Freetown, SIERRA LEONE – The Monetary Policy Committee (MPC) of the Bank of Sierra Leone (BSL) has raised alarm over the persistent increase in the yield for the 364-day T-bills, warning of its impact on government debt burden.
In their latest Monetary Policy Statement, the MPC highlighted the worrisome trend of rising yields on the 364-day T-bills throughout the fourth quarter of 2023, while the markets for 91-day and 182-day T-bills remained stagnant.
“The demand for government treasury bills has heavily favoured the 364-day tenure, with deposit money banks emerging as the primary participants. This surge in demand has pushed interbank market rates closer to the overnight lending facility rate, indicating liquidity tightness,” the statement emphasized.
Addressing monetary developments, the MPC noted nominal increases in Reserve Money (RM) and Broad Money (M2) during 2023Q4 compared to the previous quarter. RM growth was attributed to an increase in Net Domestic Assets (NDA) of the BSL, while BM growth stemmed from a rise in NDA of the Banking System.
However, the MPC cautioned that real terms showed declines in RM and M2, reflecting the impact of the BSL’s stringent monetary policy stance.
While acknowledging nominal expansion in credit to the private sector by commercial banks during 2023Q4, the MPC underscored the need for diversification of credit portfolios to bolster financial intermediation and spur growth across various sectors.
Despite the relative stability of the banking sector, with most Financial Soundness Indicators (FSIs) within acceptable thresholds, the MPC identified lingering risks such as high levels of non-performing loans (NPLs), heavy reliance on government securities for banking sector earnings, and cyber security threats.
Of particular concern is the potential risk posed by a sudden and substantial drop in T-bills rates, which could significantly impact banks’ profitability and capital position. The MPC urged the BSL to maintain vigilance and ensure banks’ compliance with existing regulatory and prudential guidelines to mitigate these risks effectively. ZIJ/8/4/2024