The Gambia: CBG moves to reduce inflation and money supply

CBG Governor Colley (Photo: Gambia News Online)

The Central Bank of The Gambia, CBG, on Monday 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.

The CBG’s May 27 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 explains in a press release. 

Last week, the Bank’s Governor Amadou Colley, admitted that inflation, the rate at which the prices of goods and services soar, have increased more than the targeted 5 per cent.

 

“This is primarily because the national currency, the Dalasi, continues to weaken in value against all major international currencies,” Mr Colley said during a “Regional course on fundamentals of macro-economic analysis”. 

The Dalasi has depreciated against the British Pound by 12.62 per cent, the US dollar by 11.87 per cent and the Euro by 12 per cent. 

Restore stability in foreign exchange market

The CBG described its latest move as one of the additional measures the Bank has taken “to restore stability and transparency in the foreign exchange market”.

In May 2013, the MPC increased the policy rate by two per cent, from 12 to 14 per cent. This was planned to enhance the attractiveness of Dalasi assets and to dampen inflationary pressures.

 
Then, MPC also indicated that it would closely monitor developments as well as take additional measures it deemed absolutely necessary.

Now, the CBG noted that the MPC in its monitoring has observed that activities in the foreign exchange market continue to exert pressure on the change rate of the Dalasi. 

Such activities like disorderly market conditions, characterised by high exchange rate volatility and wide bid-offer spreads, create inflationary pressure and stifle economic growth, Monday’s release stated.

Elimination of speculation activities

Another measure taken by the CBG is reducing the overnight net open position limits of banks and licensed finance companies for each currency from 15 per cent of adjusted capital and reserves to 10 per cent. 

It also reduced the overnight overall net open position from 25 per cent of adjusted capital and reserves to 15 per cent. 
 
The Gambia’s financial regulator said: “This is intended to help eliminate possible speculative activities, increase the flow of foreign exchange in the market and reduce banks’ exposure to exchange rate risk.”

Also, the CBG reiterated that it would uphold the market determined exchange rate regime, but, would not tolerate actions that thwart the smooth functioning of the foreign exchange market. 

“Licensed foreign exchange dealers engaged in alleged speculative activities or hoarding meant to manipulate the Dalasi exchange rate would be severely sanctioned,” the Bank warns.

It further warned that “the CBG would continue to work with The Gambia Police Force to curb the destabilising activities of the illegal foreign exchange operators”.

Source: TNBES and Gambia News Online

Written by Modou S. Joof

 
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