South Sudan's central bank lowered its policy rate and its reserve requirements to achieve 1.0 percent economic growth in the current fiscal year, maintain inflation in single digits, boost lending to the private sector and increase international reserves.
In a statement by its new governor, Moses Makur Deng, the Bank of South Sudan (BOSS) cut its central bank rate by 300 basis points to 12 percent for 2022 and the minimum reserve requirement ratio (RRR) on local currency deposits by 500 points to 15.0 percent.
In a statement by its new governor, Moses Makur Deng, the Bank of South Sudan (BOSS) cut its central bank rate by 300 basis points to 12 percent for 2022 and the minimum reserve requirement ratio (RRR) on local currency deposits by 500 points to 15.0 percent.
The reserve ratio on foreign currency deposits was lowered to 20.0 percent, according to a statement on the bank's website with highlights from a press conference on Jan. 11.
"Lower interest rates encourage economic activity and thus growth," said Deng, who was sworn in on Jan. 5, 2022 as governor and chairman of the bank's board of directors, replacing Dier Tong Ngor.
Deng, previously the central bank's director general for bank supervision, research and statistics, was instructed by the country's president, Gen. Salva Kiri Mayardit, to work hard with his counterparts, the ministry of finance and other institutions to improve the country's economy and to work for price stability, according to the BOSS website.
In response to the COVID-19 pandemic, BOSS lowered its central bank rate by 200 basis points in April 2020 and then another 300 points in July to 10.0 percent. BOSS also lowered the reserve requirement by a total of 10 percentage points.
But in November 2020, at an extraordinary monetary meeting, BOSS took several measures to tighten its monetary policy to counter the drop in the exchange rate of the thinly-traded South Sudanese pound.
This included raising the interest rate by 500 basis points to 15.0 percent - unwinding the two rate cuts in April and July - doubling the reserve requirement and cash reserve ratio to 20 percent, laying out plans to introduce bills to manage liquidity and boosting its role as a supervisor.
The economy of South Sudan, which gained independence from Sudan in 2011, was hit hard by the fall in oil prices and the pandemic in 2020, with the economy shrinking 3.6 percent and both fiscal and balance of payments deficits widening.
In the past, monetization of fiscal deficits resulted in high inflation and exchange rate depreciation but starting in October 2020 authorities stopped monetary financing of the deficit and this has helped stabilize the exchange rate along with FX auctions.
In March last year the International Monetary Fund's (IMF) executive board approved a payment of US$172.2 million to South Sudan, half of its quota, the second financial assistance by the IMF since South Sudan joined in 2012.
Deng said BOSS had managed to unify the multiple exchange rates and stabilize the South Sudanese pound at 432 per U.S. dollar as of Dec. 31, 2021 and headline inflation had declined significantly to 13.2 percent in December last year from 58 percent in December 2020.
"The Bank of South Sudan is also determined to bring down further to a single digit by the end of 2022," Deng said, targeting annual inflation of 8.0 percent with a margin of plus/minus 1 percentage point.
Other objectives include 1.0 percent gross domestic product growth in fiscal 2021/22, which began July 1, commercial bank lending to the private sector of 40 percent of total deposits and building international reserves of about 4.0 months of import cover.
BOSS's operational policy target was to maintain nominal growth of broad money at around 9.0 percent, plus/minus 1 percent, and will use minimum reserve requirements, open market operations, the central bank rate and foreign exchange operations to achieve the operational target.
As part of open market operations, which helps regulate money supply and credit conditions through the sale and purchase of eligible securities, Deng said BOSS on Feb. 1 would introduce Term Deposit Facilities (TDF) to acquire deposits through transfers with commercial banks at an agreed auction price.
