Responding to persistent inflationary pressures and uncertainties in the global economic landscape, the Monetary Policy Committee (MPC) of the Bank of Sierra Leone (BSL) has announced an increase in the Monetary Policy Rate (MPR) by 1 percentage point, bringing it to 23.25 percent.

This decision was reached during the MPC’s meeting chaired by Dr. Ibrahim L. Stevens, Governor of the BSL, convened on March 28, 2024.

The decision to raise interest rates comes against the backdrop of various global and domestic economic challenges, as outlined in the recent monetary policy statement released by the Central Bank.

While the global economy has shown resilience in the face of recent shocks, concerns persist regarding ongoing geopolitical tensions and disruptions in supply chains. Although the global economy is forecasted to expand by 3.1 percent in 2024, inflationary pressures persist, albeit at a moderating pace. Key contributors to these pressures include the Israel-Palestine conflict, the Russia-Ukraine war, and fluctuations in energy prices.

Signs of a gradual easing of inflationary pressures have been observed since October 2023, with headline inflation decreasing from 54.59 percent to 42.59 percent by February 2024. This decline is attributed to the BSL’s stringent monetary policy stance and stable exchange rates. However, risks to the upside remain due to proposed fiscal measures, volatility in energy prices, and elevated inflation expectations.

There is optimism regarding the growth prospects, with real GDP projected to increase to 4.7 percent in 2024 and 5.2 percent in 2025, driven by enhanced investment in agriculture, mining, and service sectors. Nevertheless, risks to growth forecasts persist, particularly concerning geopolitical tensions impacting global supply chains.

Efforts to narrow the trade deficit and boost foreign exchange reserves have yielded positive results, albeit still below the desired level. Government fiscal operations registered a surplus in 2023Q4, propelled by improved revenue collection and restrained expenditure. However, fiscal challenges persist amidst growing spending needs.

Both Reserve Money and Broad Money experienced nominal growth in 2023Q4, reflecting the policy measures undertaken by the BSL, although real terms saw declines. The banking sector remains stable, although risks such as non-performing loans and excessive reliance on government securities for earnings persist. The MPC stressed the importance of sustained surveillance and adherence to regulatory standards.

In light of the prevailing risks associated with inflation and the imperative of maintaining macroeconomic stability, the MPC opted to raise the MPR to 23.25 percent, accompanied by adjustments to Standing Lending Facility and Standing Deposit Facility rates. This move aims to anchor inflation expectations while providing support for economic expansion.

The Bank of Sierra Leone pledges to closely monitor global and domestic developments, with the next MPC meeting scheduled for June 27, 2024.