MONROVIA – 21 May 2021: Following the quarterly meetingof itsMonetary Policy Committee (MPC) on 19 May 2021, the Central Bank of Liberia (CBL) resolved to strengthen its engagement with commercial banks to mitigate the risks of non-performance loans on financial sector stability, with the aim of improving asset quality and loan appraisals. The CBL has also resolved that loan recovery be aggressively pursued, in compliance with its regulations.
Announcing the monetary policy decisions on behalf of the Monetary Policy Committee, CBL Executive Governor J. Aloysius Tarlue said, in addition to engaging with commercial banks to mitigate the risks of non-performing loans, CBL will initiate discussions with the Government of Liberia and other stakeholders for the establishment of specialized development finance institutions to support lending to critical growth drivers of the economy, especially agriculture and manufacturing.
Other decisions taken during the MPC May 2021 sitting included maintaining the current Monetary Policy Rate of 25%, with an upper band of +500 basis points for standing credit facility, as well as a reserve requirement threshold at 25% for Liberian dollars and 10% for United States dollars. CBL will also strengthen its engagement with the Ministry of Finance and Development Planning (MFDP) to resume the issuance of GoL money market instruments in Liberian dollars to increase the fiscal space for increased investment to the growth enhancing sectors, especially the agriculture and manufacturing subsectors.
The monetary policy decisions were guided by both domestic and global macroeconomic developments:
Global and Regional Macroeconomic Developments
The global economy rebounded from a contraction of 3.3% in 2020 and is expected to register a 6.0% growth in 2021, according to the International Monetary Fund (IMF). The MPC noted favorable developments in the prices of palm oil, cocoa bean, rubber, and rice, as well as those of iron ore, crude oil, and precious minerals (excluding gold).
The MPC also noted a slight rise in global inflation in 2021 to 3.5% from the 3.2% witnessed in 2020, while in sub-Saharan Africa, it is projected at 9.8% for 2021, 1.0 percentage point below the 2020 average. Monetary policy rates, on the other hand, remain stable both in selected advanced countries and in West African countries, except for Sierra Leone, which lowered its monetary policy rate in quarter one of 2021 relative to quarter 4 of 2020.
Domestic Macroeconomic Developments
The MPC projected Liberia’s Real Gross Domestic Product (RGDP) to rise to 3.6% in 2021, from a slump of 3.0% in 2020, while inflation for quarter 1 of 2021 moderated to 11.1%, from 12.5% in 2020. Liberia’s external account improved markedly, with the trade deficit accounting for only 1.7% of GDP as at March 2021 from 4.0% of GDP in the previous quarter, mainly reflecting the rise in exports.
The Liberian dollar, on the hand, appreciated to LD171.53/USD1.00 relative to LD 172.52/USD1.00 in quarter 4 of 2020.
The banking sector, the MPC noted, remained compliant with the capital adequacy (CAR) and liquidity ratios (LR), at 29.3% and 47.6, respectively, well above their respective thresholds. Non-performing loans, however, remained above the regulatory tolerable level , worsening by a further 5.7 percentage points to reach 26.9% of total loans.
Subscriptions to CBL bills increased by 7.5% to LD10.9 Billion from LD10.1 Billion in quarter 4 of 2020, due to increase in commercial banks and retail investors’ subscriptions by 10.4% and 17.5%, respectively.
Overall, the foregoing economic developments prompted the MPC to maintain the current Monetary Policy Rate at 25% and reserve requirements.