Tuesday, June 18, 2013

IMF says CBG stem dalasi depreciation


But, concerns have been raised about the rate at which the dalasi is dwindling in value against major currencies like the US Dollar and the British Pound
In late May, the Central Bank of The Gambia, CBG, acted to tighten monetary policy, which has helped to stem the rate of depreciation, the International Monetary Fund, IMF, claims on Tuesday.
 
The CBG has raised by two per cent (to 12 per cent) the amount of money that commercial banks can hold as reserve to curb rising inflation.

However, it admitted the Gambian dalasi has continued to face depreciation pressures.

The Gambia’s currency, the Dalasi, stood at 36.50 for one dollar on Saturday – rising to 38.50 in some quarters in the foreign exchange market on Monday, The Voice observed.

IMF’s Mission Chief to The Gambia, David Dunn, said although inflation has picked up during 2013, it is projected to stabilize at around 5 percent a year by 2014. 

“In the mission’s view, reducing Government’s net domestic borrowing further during this period will be critical to ensure confidence,” he said at the end of a June 4-17 discussions for the 2013 Article IV consultations.

All other things being normal, the IMF reiterated that the economy is “still recovering” from the severe drought of 2011. 

Last year, real growth in Gross Domestic Production, GDP, the total value of goods and services produced by the country annually, is estimated to have been just over 5 percent - driven by a strong performance in tourism and a partial rebound in agriculture, according to the IMF.

But, concerns have been raised about the rate at which the dalasi is dwindling in value against major currencies like the US Dollar and the Pound Sterling, and the general state of the country’s economy.

Opposition leader Ousainou Darboe called it worrisome – the continuous depreciation of the local currency. “Businesses are failing, even small enterprises are failing because they can no longer sustain the economic hardship, and therefore, the country’s economy is declining and it is declining fast,” the leader of the United Democratic Party argued.

On June 18, the IMF endorses the authorities’ tight monetary stance and decision to refrain from the CBG’s financing of the fiscal deficit. This will likely lead to higher Treasury bill yields, which should also help stabilize the dalasi, it said.

A statement issued on Friday by President Jammeh’s Office “noted with concern” the recent depreciation of the dalasi against major international currencies. It warned business owners in the country against hoarding foreign currencies, and that measures are being implemented to reverse this “undesirable situation”.

On May 27, the CBG announced it has raised by two per cent (to 12 per cent) the amount of money that commercial banks can hold as reserve to curb rising inflation. 

That directive also noted it would address the amount of cash commercial banks must not loan out to customers. 

The Bank’s Monetary Policy Committee, MPC, said the higher the reserve requirement is set, the less cash banks will have to loan out, leading to lower money in circulation.
 
This is intended to withdraw excess Dalasi liquidity out of the economy and thus help preserve price stability, the MPC explained.  

Written by Modou S. Joof
 
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