The Monetary Policy Committee (MPC) of the Bank of Sierra Leone (BSL) has decided to keep the Monetary Policy Rate (MPR) unchanged at 15 per cent after it was agreed in the 18th March, 2020 meeting to be lowered by 150 basis points from 16.5 percent to 15 percent. Lowering the rate in March was unanimously agreed by MPC in order to soften the potential impact of the COVID-19 pandemic on the nation’s economy.
The decision for it to remain unchanged was informed by the Central Bank’s assessment of developments in the domestic and international environments, and their potential implications for price developments and financial stability in Sierra Leone. The MPC met on 2nd July 2020, under the Chairmanship of the Governor, Kelfala M. Kallon to issue the second Monetary Policy Statement for 2020.
It could be recalled that the MPS for the second quarter in 2019 also maintained the MPR at 16.5 per cent after the Committee met on 27th June 2019 and their decision at the time was based on the MPC’s analysis of “current macroeconomic performance”, both global and domestic, and its forecast of the trend in key macroeconomic variables that are related to the BSL’s core mandate of maintaining price and financial-sector stability.
As part of its justifications for the decision, the MPC noted that inflationary pressures, after moderating in April 2020, picked up in May 2020, with headline inflation increasing to 15.5 per cent in May 2020 from 15.1 per cent April 2020.
The increase in inflation the Committee said was mainly driven by food prices, emanating from the impact of the COVID-19-related containment measures on the market for essential commodities. On the demand side, the Central Bank expressed caution vis-à-vis uncertainties about how long the curfews will last or whether the country will go into total lockdown for an extended period incentivized the hoarding of essential commodities due to expectations of shortages, which increased the demand for essential commodities.
Restrictions on the movement people and commodities caused a decrease in the supply of especially food from the provinces to Freetown. The end result of both shocks was an increase in the rate of in inflation on the supply side. “However, the expected softening of domestic demand due to an expected decrease in economic activity, the relative stability in the exchange rate and the projected decline in global commodity prices, especially oil prices, are likely to contribute to dampen inflationary pressures in the months ahead.”
On domestic economic growth, the Bank stated that the COVID-19 Pandemic has, and is expected to, adversely impact economic activity, with domestic economic growth projected at -3.1 per cent in 2020, compared to the pre-COVID-19 projection of 4.1 per cent.
“This expected development in the domestic economy is largely influenced by the COVID-19 containment measures, which continue to weigh down on economic activity in critical sectors, including tourism and trade, mining and agriculture.” The MPC is however, hopeful that the package measures under the Quick Action Economic Recovery Program (QAERP) aimed at mitigating the short-term impact of COVID-19 on the economy and setting in motion an economic recovery plan as preliminary estimates suggest that the economy will recover to a 2.7 percent real GDP growth in 2021.
Implementation of the QAERP, the easing of the inter-district lockdown, and the prospect for the resumption of cross-border trade are expected to support economic recovery in 2021.
By Zainab Iyamide Joaque