S. Sudan Central Bank increases interest rates to stabilize prices, economy

By Deng Machol

Juba - South Sudan central bank has increased interest rates to fix the exchange rate in order to stabilize the country's economy.

 Dier Tong Ngor, the newly appointed governor of the Bank of South Sudan (BOSS) said the monetary institution has increased its interest rate to 15 percent as one of the measures taken to address rapid depreciation and inflation in the country.

However, the measures were discussed at an extraordinary meeting convened on Thursday at the backdrop of the rapid depreciation of the South Sudanese Pound (SSP) and the prevailing spiraling inflation, chaired by  governor Tong, a former governor of the same institution from May 2018 to January of this year and was reappointed on Monday, this week.

Governor Tong said the bank’s Monetary Policy Committee resolved five resolutions aimed at tackling the devaluation.

Among the policies agreed upon is the increment of bank interest rate to 15 percent.

The bank’s reserve requirement rate for commercial banks and cash reserve ratio has been increased to 20 percent.

The bank also said it will introduce bills to manage liquidity.

The new policy is in sharp contrast to that put forward by the bank three months ago. In July, the bank had reduced the interest rate from 13 percent to 10 percent.

Addressing members of the press on Friday in Juba, Tong expressed hopes that the bank will mitigate the current hyperinflation.

“The Monetary Policy Committee (MPC) of the central bank noted that the economy is severely battered and shocked due to external factors like COVID-19 and also the low prices of oil in the international market which led to considerable fiscal imbalances in the country and also which constrained the performance of the financial sector particularly the banking sector,” said Tong.

The Eastern African's youngest nation has three exchange rates – one from the central bank, commercial banks, and another from the so-called parallel or unofficial market.

The South Sudanese Pounds has been depreciating drastically following the drop of the country’s oil revenues and irregularities in the collection of non-oil revenue.

As of now, 100 US dollar sold at about 55,000 South Sudanese Pounds in the black market, while at the Central Bank, 100 dollar sells at 17,100 pounds.

Consumers had complained of a sharp rise in the prices of basic commodities while traders have also raised concerns over their inability to access hard currency for importing goods.

The country's economists have repeatedly called for structural and institutional reforms to address the country’s economic woes.

“We need to make sure that the prices are at-least stable, and when they are stabled through other measures like increasing productivity or reducing our foreign exchange demand. We can slowly begin to improve things,” Tong told reporters.

In August, the former governor of the central bank told the press that the top bank did not have enough foreign reserves as it used to due to low revenue collections and conditions created by the coronavirus pandemic.

The minister of trade and industry had also earlier told a select parliamentary committee that the bank was unable to regulate operations of commercial banks because of a huge debt it owes them.

The Equity, Ivory, KCB, Ecobank, and Cooperative Bank are demanding about $92 million from the central bank.

In October, Kiir's government announced plans to inject hard currency into the market through the central bank and other commercial banks to control a run against the pound and stabilize commodity prices, but is yet.

“To impose these new policies, we will raise the policy rate that is the interest rate of the central bank, the rate which we use when we are lending to the government or commercial banks. We will raise that rate immediately to 15 percent,” Tong said. “Also we will increase the reserve requirement ratio that is by law imposed on the deposit of commercial banks to 20 percent.”

Tong further said the bank will step up its supervisory role by continuously monitoring the cash involved of the commercial banks. 

"We know that commercial banks also keep cash in their vaults and the cash has to be used in a way that supports the economy,” he added. “These are the immediate measures that we are taking as a monetary policy but we will also work very closely with the ministry of finance and other partners to ensure that we address the broader macroeconomic situations.”

Governor also believed that the country’ economy has been affected by the drop in prices of oil in the international market because of its dependence on imports from neighboring countries of East Africa.

“We are almost importing everything, and our main source of foreign exchange is oil.  If we don’t export oil, we are in big trouble, so we want to influence this exchange rate, and we think if we reduce the liquidity that is available in the market for speculation then it can impact exchange,” Tong said.

South Sudan was emerging from the five year of conflict that has devestasted the economy, sending four million people to the refugee camps in Kenya, Uganda and Sudan.

A partial peace government was installed in late February in abides to end the brutal conflict and to strengthen the falling economy but the implementation of peace process is in tortoise way.