Monrovia – Amid the increasing inflation rate and a dwindling economy, the Central Bank of Liberia (CBL) has introduced a set of new monetary policies aimed at reviving the Liberian economy.
At a press briefing on Monday at the CBL headquarters in Monrovia, the Officer-In-Charge (OIC) of the CBL, Dr. Musa Dukuly stated the CBL’s Board of Governors has increased the Standing Deposit Facility (SDF) rate to 30 percent and set the Standing Credit Facility at 500 basis points above the SDF.
In addition, the CBL has announced the issuance of shorter tenor instruments at two, one, three, six and twelve months at 30 percent per annum, and reduced the Liberian ‘Dollar Reserve Requirement’ (RR) to 15 percent from 25percent, and increased the US Dollar RR to 15%, from 10 percent.
The CBL has also announced the Suspension of the 25 percent ‘Remittance Split Policy’ for the month of December, 2019.
Through this policy, 25 percent of every money received through remittances is converted into Liberian dollars.
Dr. Dukuly, who is also the CBL’s Deputy Governor for Economic Affairs said the decisions are aimed at executing the Central Banks’s core mandate of achieving and maintaining price stability and were based on global, regional and domestic economic developments and financial market conditions.
He said the CBL’s measure of economic activity indicated that output declined at a rate of 0.1 percent at the end of September 2019, compared with a decline of 0.8 percent at the end of June 2019, on the back of weak production and consumption activities.
“Growth for the year is projected to be 0.4 percent, from 1.2 percent in 2018,” he added.
Inflationary pressures, he pointed out have heightened as the Liberian dollar weakened.
“Both consumer price inflation and the rate of depreciation of the Liberian Dollar are in double digits in the wake of worsening trade balance and growing inflation expectation. The current gross foreign reserves position is less than three months of import cover,” Dukuly stated.
Impact of the Policy
According to the OIC of the CBL, the measures taken are expected to help contain inflation, control the level of the Liberian dollar in circulation and ease the pressure on the Liberian dollar exchange rate vis-à-vis the United States dollar.
This, he said will promote confidence in the Liberian dollar; provide investment opportunity for Liberian dollar with a higher rate of return; and, in the medium-term, impact the savings rate and boost domestic capital mobilization for long-term investment.”
He pledged the CBL’s ‘full’ commitment to moderating the current inflationary pressure to support stable macroeconomic environment in Liberia, adding these policy measures will be reviewed every three months as the Board meets to assess their effectiveness.
How Will the Measure Impact Everyday Liberia?
The policy is being introduced amid complaints by ordinary Liberians over the ‘high cost of living’ and uncertainties of the Liberian economy.
Currently, the exchange rate is steadily decreasing, but prices of goods and services continue to go up.
On the back of such irregularities, customers are complaining over the shortage of Liberian dollars at various commercial banks, plus the continuous issuance of mutilated banknotes to customers by the commercial banks.
Dr. Dukuly could not clearly state what measures the CBL is putting in place to address the situation.
However, he said, a strong Liberian Dollars against the United States dollars is a favorable boost for the CBL.
For the issuance of mutilated bank notes, he said, the CBL is not printing new banknotes to replace the mutilated ones, this he said is causing the liquidity of cash on the market.
“The time at which you print money, there should be another timeframe to print and replenish the money that has been mutilated. But we got a situation where the Central Bank has not really printed,” he said.
The OIC made the comments in the wake of ongoing discussion to print new banknotes.
There have been rumors that the CBL is withholding the local currency and issuing mutilated banknotes to prove its case for the need of printing additional or new banknotes.
However, he added that one of the best ways to address the situation is to encourage the use of electronic money such as the mobile money platform.
“If we move to a cashless economy, where we have minimum use of cash like China [the People’s Republic of], that could be an easy way to address the situation. We try to encourage mobile money and financial digitization.”
Meanwhile, the press conference was attended by stakeholders of the financial sector including business executives and bankers, among others.
The president of the Liberian Bank for Development & Investment (LBDI), John Davis welcome the policy and said it will encouraged high returns for customers.
He also called for the need to promote and electronic banking economy.
“It is becoming increasingly difficult for a cash based economy to contribute on a cash based. the sooner we put that in the back of our minds and look for options using electronic works, using other digital financial tools, increasing the numbers of ATMs and increasing the numbers of points of sales, the better it becomes for all of us,” he said.
Also speaking, the president of the Liberian Marketing Association (LMA), Alice Yeabahn called on the CBL to explain its new policy in simple terms to the business community for proper understanding.
Madam Yeabahn named the issuance of mutilated banknotes by commercial banks and the blatant refusal of banks to give out customers’ money on time as some of the problems discouraging people from saving their money in the bank.
“The only way the policy will be understood by the marketers,” she said is for the CBL to address these problems.
“Whenever we go the bank, they give us tear money. And when we want our money, they will say system down. It should not be like that. The system should not be down for us because when we go there to deposit our money, they can’t tell us system down. This system down English is not doing well for the marketers. Let the system be up for us this holiday season,” she said.