Liberia: Central Bank of Liberia Upholds Monetary Policy to Curb Inflation

CBL Executive Governor, J. Aloysius Tarlue announced the maintenance of the monetary policy rate at 30 percent is in response to the global economic uncertainties, especially the Coronavirus, which is threatening the global economy.

MONROVIA – The Board of Governors of the Central Bank of Liberia (CBL), during its March 2020 meeting, has announced its decision to maintain the monetary policy rate of 30 percent.

This comes nearly four months after the CBL Board had set a monetary policy rate of 30 percent, after transitioning from an exchange-rate-targeting monetary policy framework to an interest-rate based regime.

In a statement delivered on behalf of the Board, CBL Executive Governor, J. Aloysius Tarlue said the maintenance of the monetary policy rate at 30 percent is in response to the global economic uncertainty, especially the Coronavirus, which is threatening the global economy.

Other decisions made by the CBL Board during the meeting include the continuation of the suspension of the remittance split policy, and the continued issuance of shorter tenor financial instruments (CBL Bill) at two weeks, and one and three months above the current inflation rate.

The Board also resolved to continue the sensitization campaign for the CBL Bill and the use of electronic payments as alternative to cash transactions.

Global Developments

According to Governor Tarlue, manufacturing and trade within the global economy during the first half of 2019 weakened on account of trade policy uncertainties and geopolitical tensions.

However, he added that global economic growth rebounded in the second half of 2019 and that trend is projected to continue throughout 2020 and yield a 3.3 percent growth in global economic activity.

He furthered that monetary policy easing, through declining policy rates in several economies, should help global activity recover, but warned that key risks to this growth uptick is the coronavirus, which if not mitigated or eradicated could reverse the gains that were made especially in the last half of 2019 for which an upward trend was projected in the first quarter of 2020.

The Domestic Economy

On the domestic front, the CBL announced that the Liberian dollar gained strength against the US dollar in the fourth quarter of 2019 for the first time since 2014. Compared to the third quarter of 2019, when the exchange rate was L$204.4 to one US dollar, the Liberian dollar appreciated by 11.3 percent by the end of the fourth quarter of 2019.

The CBL also mentioned that the Bill did well in the last quarter of 2019, thanks to the 30 percent monetary policy rate that was announced earlier in November 2019. Subscriptions for the CBL Bill rose to LD440.4 Million in quarter four of 2019, rising from LD92.6 Million in the previous quarter.

All was, however, not ‘smooth-sailing’ for the Liberian economy. Non-performing loans stood at 17.2 percent of all loans by the fourth quarter of 2019, representing an increase of 4.5 percent over the previous quarter.

In the wake of depressed global economic activity, Real GDP growth for Liberia was estimated to contract by 1.4 percent due to underperformance in manufacturing, services and the forestry subsectors. The weak performance of the economy was further shown by deterioration in the output gap.

“Annualized inflation fell by 5.1 percentage points to 25.8 percent, from 30.9 percent in Quarter three (Q3) 2019 on account of declines in market prices due to the appreciation of the Liberian dollar,” Governor Tarlue said in the statement.

“Merchandise trade balance remained in deficit, despite improving slightly due to decline in import payments that outweighed the fall in export receipts in Q4. As a share of GDP, the trade deficit in Q4 fell to about 3.7 percent of 2019 GDP, from 5.0 percent in the previous quarter.” 

Prompted by the above developments in both the global and domestic economy, the CBL Board opted to reduce its monetary policy rate and vigorously promote the CBL Bill and electronic payments systems, the very policies that engendered price stability and low inflation in quarter four of 2019, with the hope that the trend would continue throughout 2020.