The Central Bank of Liberia has slashed its Monetary Policy Rate (MPR) from 17.5% to 17% within just three months.
This decision, made by the bank’s Monetary Policy Committee (MPC), comes in light of a softening inflation rate, which has dipped to 6.8% from 7.4% in the second quarter of 2024.
The central bank credits improved food prices as a key factor contributing to this moderation.
In a statement, the MPC expressed confidence in the expected inflation forecast for the last quarter of 2024, predicting it will further decrease to 6.4%, remaining well within a target band of +/- 2 percentage points.
This is viewed positively amid a 1.3% growth in quarterly Real GDP, contrasting with earlier contractions in the year, attributed to improved consumer spending and effective government fiscal measures.
However, the MPC has raised concerns about the banking sector’s performance, highlighting that while loans and advances grew slightly by 1.2%, other critical balance sheet metrics—such as total assets, deposits, and total capital—experienced declines of 0.6%, 2.6%, and 1.6%, respectively.
Non-performing loans (NPLs) have also risen, signifying potential risks in financial stability.
Sectoral analysis reveals that the majority of loans are concentrated in trade (28.6%), personal borrowing (16.6%), and services (15.1%). Alarmingly, the banking sector’s low intermediation to agriculture and manufacturing indicates potential vulnerabilities as these sectors often record the highest rates of NPLs.
Private sector credit displayed mixed trends; the Liberian dollar credit dropped 0.9% to L$5.79 billion, mainly due to reductions in lending to agriculture, services, and manufacturing. Conversely, USD credits increased by 1.3% to US$481.6 million, bolstered by growth in key sectors.
Monetary aggregates have displayed slight declines, with broad money (M2) contracting by 1.6%. Though monetary stability is currently preserved, the MPC flagged concerns over potential growth in currency outside banks that could exert inflationary pressures in the upcoming quarter.
Financial market activity showed positive signals, particularly for Central Bank of Liberia (CBL) bills, which saw a 24.8% rise in total subscriptions. In contrast, the absence of government market activity points to potential developmental risks within financial markets.
On the fiscal front, the government recorded a deficit in Q3, influenced by a 0.5% drop in expenditures and a notable 9.7% reduction in revenue. However, a surplus of US$4.8 million was seen in Primary Balances, and a moderately improving fiscal stance offers some optimism.
Furthermore, the trade deficit has drastically improved, projected to be US$48.9 million, underpinned by decreased import payments and a modest rise in export receipts. The gross international reserves have also risen by 6.5%, further stabilizing essential import cover.
Despite some resistance, the Liberian dollar has shown relative stability against the US dollar, slightly appreciating at the end of September. The MPC remains hopeful that careful liquidity management will sustain this stability in the coming quarter.
