The Central Bank of Liberia (CBL) has opted to maintain its Monetary Policy Rate (MPR) at 17.0 percent, amidst rising inflation and a deceleration in economic growth as the new year unfolds.
This decision was made during the Monetary Policy Committee’s (MPC) recent assessment of ongoing domestic and global economic conditions.
The CBL’s decision to freeze the MPR comes at a time when the Quarterly Real Gross Domestic Product (QRGDP) saw a significant downturn, dropping to 1.7 percent in the fourth quarter of 2024 from 5.3 percent in the first quarter of the same year.
Economic growth is anticipated to remain subdued in the early months of 2025, largely due to businesses aiming to replenish inventories exhausted during the festive season.
Compounding concerns for the MPC is the notable rise in consumer prices, which surged to 8.7 percent, up from 5.9 percent in the third quarter of 2024. Projections indicate that inflation could reach approximately 10.3 percent in the first quarter of 2025, primarily driven by increases in domestic food prices.
As inflationary pressures mount, the MPC aims to balance stimulating economic activity while controlling rising consumer prices.
The banking sector also reflected ominous trends, with total assets, deposits, and loans declining by 3.4 percent, 3.3 percent, and 5.5 percent respectively, largely attributed to the appreciation of the exchange rate.
Nevertheless, a decrease in non-performing loans indicated a slight improvement, as it fell to 19.2 percent from 21.3 percent in the previous quarter, though still exceeding the acceptable limit set by the Bank.
The MPC acknowledged a concentration of credit in specific sectors, including trade, personal matters, and services. Notably, credits to the private sector showed steady growth, with the Liberian dollar component climbing by 2.7 percent as of the third quarter of 2024, fuelled by robust credit increases in the manufacturing and agriculture sectors.
Despite a slight contraction in broad money, which fell by 1.4 percent in the fourth quarter, the government injected L$13.2 billion into the economy, aligning with ongoing efforts towards gradual de-dollarization. While the MPC welcomes these fiscal initiatives, it remains cautious about a projected rise in Liberia’s trade deficit, which is expected to expand from US$35.2 million to US$67.1 million, noting a corresponding decrease in gross international reserves.
On the global front, economic growth has moderated slightly, with global inflation decreasing from 6.7 percent in the previous year to 5.8 percent in 2024. However, the MPC cited a potential risk to global economic stability stemming from ongoing geopolitical tensions and market fluctuations, particularly related to commodity prices, which have shown mixed trends.
In response to the evolving economic landscape, the MPC has reintroduced a corridor system for monetary operations, with the standing credit facility set at the upper band of the MPR plus 2.5 percentage points and the standing deposit facility at the lower band of the MPR minus 7.5 percentage points.