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Sierra Leone News: MPC forecast inflation rate to increase to around 10.0 percent in December 2014

Governor, Momodu Lamin KargboThe Monetary Policy Committee (MPC) met on Tuesday December 2, 2014 under the Chairmanship of the Governor, Bank of Sierra Leone, Mr Momodu Lamin Kargbo, to review recent macroeconomic and financial developments in the economy against the backdrop of continuing socioeconomic challenges posed by the Ebola Virus Disease crisis. The Committee assessed the balance of risks to inflation and the implications for monetary policy. The committee also considered the fiscal outlook and the implications for monetary operations.
The Committee observed that Consumer Price Inflation, as measured by the year-on-year change in the composite national Consumer Price Index (CPI), rose from 7.51 per cent in September 2014 to 7.78 per cent in October 2014 driven mainly by Ebola related supply shocks and the pass-through effect of the exchange rate depreciation. On the basis of these developments, the committee agreed that the outlook for inflation remains unfavourable as it is projected to rise further over the next quarter. The MPC also noted the progress made towards meeting the key quantitative performance for end December 2014 under the IMF supported ECF programme and hoped that the expected external budget support is disbursed before the end of the year.
The Committee also noted the continuing depreciation of the Leone relative to other international currencies since the outbreak of Ebola. The committee agreed that the depreciation of the Leone is attributable, largely, to the ebbing flow in Foreign Direct Investment and the slowdown in real sector activities, particularly agriculture, tourism and mining. The Committee acknowledged that the increasing concerns about the nation’s economic prospects and business environment are mainly due to the negative perceptions associated with uncertainties for the end of Ebola.
In conclusion, the Committee agreed that to minimise the scarcity in the supply of basic essential commodities, including petroleum and food, a policy of wholesale Foreign Exchange Auctions will be pursued to end year 2014 to support the import requirements for essential commodities of Small and Medium sized Enterprises (SME’s). This will be supplementary to the current weekly foreign exchange auction of US$3.00 million to support importation of essential commodities as well as reduce excess liquidity. Furthermore, the MPC noted the commitment of the fiscal authorities to publish quarterly Treasury Bills auction calendar, with a view to enhancing communication with the market, on Government borrowing plans.
In the meantime, the Bank will continue to scale-up its Open Market Operations (OMO) through repurchase (repo) and reverse repo auctions. The Bank remains vigilant to respond to the second round effects of Ebola shocks on domestic prices.
The following decisions were taken by the Committee:-
1. A wholesale Foreign Exchange auction in the amount of US$5.0 million be conducted by the BSL over the next two weeks, to end December 2014, to cater for the importation requirements for essential commodities of Small and Medium sized Enterprises (SME’s); and
2. The Monetary Policy Rate (MPR) will remain unchanged at 10 per cent in light of the current circumstances, as the Bank continues to watch and analyse the inflation trends.

Therefore, effective Monday, December 8 2014, the following rates are published for the information of the financial market:-
 Monetary Policy Rate is 10.00 per cent
 Standing Facility Rate is 11.00 per cent
Momodu Lamin Kargbo
Governor
Bank of Sierra Leone
8 December 2014
Friday December 12, 2014

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