In a significant move to address inflationary pressures, the Bank of Sierra Leone (BSL) announced an increase in the Monetary Policy Rate (MPR) by 0.50 percentage point to 24.75 percent.
This decision was approved by the BSL’s Board of Directors at its 543rd meeting on September 30, 2024. The decision follows recommendations made by the Monetary Policy Committee (MPC), chaired by Governor Dr. Ibrahim L. Stevens, after assessing global and domestic economic conditions.
“The committee is committed to ensuring price stability, particularly in light of the persistent inflationary pressures,” Dr. Stevens said, emphasizing the importance of the increase in the MPR.
He added that this adjustment is necessary to stabilize the domestic economy amidst ongoing geopolitical risks and global economic uncertainty.
Global Economic Conditions
The MPC highlighted that global economic activity has remained resilient in 2024, with improvements in trade and financial conditions contributing to steady growth. According to the International Monetary Fund (IMF), global GDP growth is projected to remain at 3.2 percent in 2024, with a slight increase to 3.3 percent in 2025. Global inflation, which has been decreasing, is expected to further decline to 5.9 percent in 2024 and 4.4 percent in 2025.
“The gradual decrease in global inflation is encouraging,” the MPC noted, adding that lower imported prices could contribute to a further reduction in Sierra Leone’s inflation. However, the committee expressed concerns over ongoing risks from geopolitical tensions, particularly the Russia-Ukraine conflict and instability in the Middle East, which may affect the global economy.
Domestic Economic Developments
On the domestic front, inflationary pressures have eased over the past ten months. Headline inflation dropped by 29.10 percentage points, falling from 54.59 percent in October 2023 to 25.49 percent in August 2024. This decline is attributed to a combination of tight monetary policy, a stable exchange rate, and moderating global commodity prices. However, the MPC warned that potential risks, such as disruptions to supply chains, could still push inflation upward.
Despite this, the committee remains optimistic about continued efforts to reduce inflation. “The Bank will remain vigilant in its fight against inflation,” Dr. Stevens affirmed. He further stated that achieving price stability is crucial for improving the cost of living and fostering international investment.
Growth Prospects
Looking ahead, the real GDP growth for Sierra Leone is expected to be 4.0 percent in 2024, slightly lower than the 5.7 percent recorded in 2023, due to uncertainties in the mining sector. Growth is projected to rise to 4.5 percent in 2025, driven by agricultural expansion, mining sector recovery, and macroeconomic stability.
While optimistic, the MPC warned that geopolitical uncertainties could pose challenges to the country’s growth prospects. “Global tensions and their impact on trade flows are critical factors that we must continue to monitor,” the committee stated.
External Sector and Fiscal Developments
The country’s trade deficit improved in the second quarter of 2024, with the trade balance narrowing to US$115.6 million from US$142.4 million in the first quarter. This improvement was driven by an increase in export receipts, offsetting the rising cost of imports. However, foreign exchange reserves decreased slightly, covering only 2.0 months of imports compared to 2.3 months in the previous quarter.
“The Bank remains confident that foreign reserves will improve following the IMF’s expected approval of a new Extended Credit Facility programme,” Dr. Stevens noted. He also highlighted ongoing negotiations for climate-related financing and the signing of the Millennium Challenge Corporation (MCC) Compact, which are expected to boost the economy in the near future.
Monetary and Fiscal Policy
The Bank of Sierra Leone’s efforts to maintain a tight monetary policy have helped reduce inflation, but challenges remain, particularly regarding high lending rates, which hinder private sector investment. “Although private sector credit has increased slightly, high interest rates continue to be a barrier for business growth,” the MPC observed, calling for coordinated efforts to lower yields on government securities and improve debt sustainability.
On the fiscal front, domestic revenue improved by 9.4 percent in the second quarter of 2024. However, the overall fiscal deficit slightly increased due to discretionary government spending. The MPC stressed the need for continued fiscal consolidation to strengthen the country’s fiscal position and reduce public debt.
Conclusion
Despite the moderation in inflation, the MPC acknowledged that inflation remains high by historical standards. “We are fully aware of the difficulties high inflation poses for households and businesses,” the MPC noted. The committee pledged to maintain a tight monetary policy until inflation is brought under control.
The next MPC meeting is scheduled for December 19, 2024, when the committee will reassess the economic situation.
Effective from October 1, 2024, the revised rates are as follows:
– Monetary Policy Rate (MPR): 24.75%
– Standing Lending Facility Rate (SLFR): 27.75%
– Standing Deposit Facility Rate (SDFR): 18.25%
