#TheGambia – Central bank increases policy rate by 100bps to 23% in May 2015 MPC

By Rafiq Raji, Ph.D.

Real GDP growth for 2014 revised up to 1.6%; a contraction of 1.4% was previously estimated. Latest revision comes on the back of authorities’ estimation of a lower than expected contraction of 8.4% in the agriculture sector (previously -22.7%). The hard-hit services sector (65% of GDP) – due to effects of Ebola fears on tourism sector – apparently expanded by 6.9% in 2014 (8.1% in 2013), according to authorities.

Fiscal deterioration continues – Q1 2015 domestic debt rose 38.7% y/y, indicative of continuing fiscal deterioration. In spite of this, the government yield curve (maturities no more than a year) shifted downwards, with the interbank rate falling to 12.7% in March 2015 from 15.2% a year earlier. Net borrowing in Q1 2015 amounted to c. GMD 0.5bn (8.8% of GDP, based on pro-rata 2014 data). With data such as these, authorities plan for a 1.3% of GDP fiscal deficit in 2015 (12.6% of GDP fiscal deficit in 2014) is clearly at risk.

Inflation rises above target, prompting 100bps rate hike to 23 % – Inflation remains on an upward trajectory with the rate rising to 6.7% y/y (above the CBG target of 5.0%) in March 2015, largely due to food inflation. Much more noteworthy is how core inflation (excludes energy and food prices) accelerated faster, rising 7.1% in the same month. In light of the recent downward revision of the exchange rate by fiat[1], the balance of payments (BOP) data is not of much use. Noteworthy though, gross FX reserves stood at USD 95.8mn (3.4 months of imports) as at end-March 2015, a decline from its 2014 level of USD 112mn (4 months of imports). This was as the volume of FX transactions increased 13.7% y/y to USD 1.41bn for the same period. Dalasi depreciation (e.g. USD: GMD depreciated by 21.9% in the period) probably explains the converse trend.

[1] http://macroafricaintelligence.com/2015/05/06/gambia-authorities-launch-operation-no-compromise-set-dalasi-rate-downwards-by-fiat-institute-capital-controls/

See link to MPC statement http://www.cbg.gm/research/pdf/Press%20Release/Press%20Release_Draft_May_2015.pdf

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.