CBL Board Retains Monetary Policy Rate

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Governor Tarlue, with CBL Board of Governors (right) after the pronouncement of the new monetary policy.

The Board of Governors of the Central Bank of Liberia (CBL), during its August 19, 2020 sitting on Monetary Policy decision, agreed to retain the monetary policy rate of 25.0% based on a projected headline inflation of approximately 17.0% for quarter three of 2020. According to a statement from the CBL, price indices of energy and non-energy commodities in low and middle income countries fell in quarter two.

“The announcement to maintain the current monetary policy rate is partly predicated on the evolving global economic dynamics,” the CBL said, “which has transmitted adverse effects to domestic economic developments. In May this year, the Central Bank lowered its monetary policy rate from 30.0% to 25.0%.”

The CBL Board of Governors also decided to continue the suspension of the Standing Deposit Facility (SDF) and the Remittance Split Policy to enhance stability of the financial sector.

“Henceforth, it is announced that commercial banks will only be restricted to purchase the CBL Bill on a one to three-month period to allow for greater sterilization effect,” the Bank said.

Global Developments

On the global front, two critical economic situations further motivated the CBL’s monetary policy decisions at the recent Board meeting, the Bank says.

The CBL named the lockdowns, arising from COVID-19, which triggered cutbacks in investments, supply chain disruptions and uncertainty, resulting to revision of global economic growth projections to negative 4.9% from negative 3.0% in 2020. In addition, inflation projections are put at 0.4% and 1.2% in advanced and emerging markets economies, respectively.

The CBL also named Monetary Policy Rates as another economic situation that motivated the CBL’s monetary policy decisions. In June 2020, the Bank said, monetary policy rates stabilized at 0.25% and 0.10% in the United States and United Kingdom, respectively and negative 0.50% in the European Union. In West Africa, some rates were eased, while others remained stable. For example, in The Gambia and Nigeria, monetary policy rates eased by 200 basis points to 10.0%, and 100 basis points to 12.5%, respectively; while Ghana and Sierra Leone maintained their monetary policy rates at 14.5% and 15.0%, respectively.

The Domestic Economy

“Consistent with developments in the global economy, economic activity in Liberia is projected to contract by 2.5% in 2020, reflecting subdued activities in the secondary and tertiary sectors, despite forecast of modest economic improvement in the last quarter of the year,” the CBL continued.

“At the quarter ended-June 2020, inflation moderated to 18.0%, a reduction by 5.7 percentage points in the previous quarter and projected to further moderate to 17.0% in quarter three. Net remittance inflow was US$48.4 million in the second quarter of 2020 and expected to rise beyond quarter three.

“These developments,” CBL explained, “in addition to decisions of heightening financial education for increased retail subscriptions for the instruments and strengthening policy coordination with the fiscal authority on liquidity management to sustain the downward inflation spiral, prompted the CBL’s Board to keep the monetary policy rate unchanged at 25%.”

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