Gambian Dalasi continues to depreciates, no probability of appreciation soon

Obverse of 10 and 25 dalasi note (Photo credit: Wikipedia)

The Gambia national currency, the Dalasi, continues to depreciate in value and it is not expected to stabilise soon and to start to appreciate, the International Monetary Fund (IMF) has warned on Monday.

The Fund stated that the continuous weakening of the Dalasi will continue to further accelerate inflationary pressure in the country leading to increase in prices of goods and services.

“The Gambian dalasi has continued to face depreciation pressures,” said Mr David Dunn, the IMF mission chief for The Gambia. The Dalasi continues to depreciate and loss value over the past year. Recently, in May 2013, it 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.

However, Mr Dunn said in late May 2013, the Central Bank of The Gambia (CBG) acted to tighten monetary policy in the country to guard against the depreciation of the Dalasi and to control inflation.

In May, the CBG has issued a directive raising the amount of money that commercial banks in the country have to hold as reserve – amount of cash that they should not loan out to customers.

The regulatory bank raised the reserve requirement of commercial banks by two percentage points to 12 per cent.

The rationale behind this impromptu decision is to withdraw excess Dalasi liquidity out of the economy and thus help preserve price stability.

“This has helped to stem the rate of depreciation [of the Dalasi],” acknowledged Mr Dunn, who led the IMF mission that visited The Gambia from 4 to 17 June to conduct surveillance discussions for the 2013 Article IV consultations.

IMF Headquarters, Washington, DC. (Photo credit: Wikipedia)

However, Mr Dunn told FPI that this is not enough to stabilise the depreciation of Dalasi for it to start to appreciate.

He pointed out that the government has to reduce its domestic borrowing so as reduce the pressure on the interest rate in the country.

This will reduce the interest rate in the country hence the money in circulation as a result inflation will start to decline and the rate of the Dalasi will be stabilised and it will then start to appreciate, he said.

Dunn also acknowledged that the government is reducing its domestic borrowing, but is it is not significant to reduce the interest rate and stabilise the Dalasi.

However, reducing Government’s domestic borrowing to 1½ percent of Gross Domestic product (GDP) in 2013—as previously planned—will be critical to eventually ease the current pressure on inflation and interest rates, and to stabilise the national currency.