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Central Bank of The Gambia (CBG) Monetary Policy Committee (MPC) Maintains Policy Rate at 17 %.

Press release February 27, 2024 
The Monetary Policy Committee (MPC) of the Central Bank of The Gambia (CBG) convened on February 26 and 27, 2024. The Committee decided to maintain the  Monetary Policy Rate at 17 percent. The decision is aimed at sustaining the declining  trend in domestic inflation. The following is an overview of deliberations that informed  the Committee’s decision. 
1. Prospects in the global economy have improved since the last MPC, thanks to  the strength of the United States economy and some large emerging market  economies, supported by both demand and supply factors. Sustained private  and government spending in most economies combined with favorable supply  developments contributed to the improvement. Against this backdrop, the  International Monetary Fund (IMF), in its January World Economic Outlook  (WEO) updates forecast global growth at 3.1 percent in 2024, the same level as  the estimates for 2023. However, the projections for both 2023 and 2024 are still  lower than the historical average of 3.8 percent. In addition, this outlook is  shrouded with significant risks, including the impact of the ongoing geopolitical  developments on international trade and commodity prices. 
2. Global headline inflation continues to decelerate as moderating energy and  food prices, along with monetary tightening continue to exert significant  downward pressure on inflation in most regions. The IMF estimated global  headline inflation for 2023 at 6.8 percent and revised the forecast for 2024  downwards by 0.2 percentage points to 5.8 percent. However, the pace of the  disinflation process varies with advanced economies seeing a faster decline in  headline inflation while emerging markets and developing economies are  forecast to experience a slower deceleration in inflation.
3. International commodity prices continued to decline, driven by the fall in prices of food, metals, and copper that outweighed the surge in crude oil prices. The  IMF All Commodity Prices Index fell by 0.3 percent in January 2024, from the  level it was in December 2022, and by 12.9 percent from a year ago. 
4. Furthermore, the FAO Food Price Index in January 2024 dropped by 1.2 percent  from the December level and 10.4 percent from its corresponding level a year  ago. This decrease in the index reflects ample supply, particularly grains, except  for rice. International rice prices rose in January this year amid strong demand  in preparation for Ramadan coupled with India’s export ban. The FAO Rice  Price Index increased by 1.2 percent from December to January and by 13.0  percent from a year ago. The World Bank forecast rice prices to increase by 6.0  percent in 2024, underpinned by trade restrictions, adverse weather conditions, and geopolitical uncertainties. 
5. On the domestic front, the Gambian economy continues its resilience, registering a growth rate above the average for sub-Saharan Africa. Recent  data from the Gambia Bureau of Statistics (GBoS) revealed a quarterly  annualized real GDP growth of 4.8 percent, supported by agriculture and  services sectors. In addition, the Bank’s Composite Index of Economic Activity  (CIEA) pointed to a robust activity level in the fourth quarter of 2023. As a result,  CBG staff forecast economic growth at 5.4 percent for 2024, representing a 0.1 percentage point upward revision from the November 2023 forecast. Public  and private consumption and investments are expected to sustain aggregate  demand as well as recovery in tourism and stable inflows of remittances.  However, this outlook is surrounded by significant headwinds, including the still elevated inflation, uncertainties surrounding global commodity prices, and  structural holdups in the domestic economy. 
6. The results from the Central Bank’s latest Business Sentiment Survey revealed that sentiments about the prospects of the Gambian economy have improved. Most of the businesses expressed optimism about the near-term growth outlook. Businesses also expect to hire more people with the expectation of increased  production. However, near-term inflation expectations remain high, as survey  respondents believe inflation will rise in the next three months. The effect of  geopolitical developments, especially its impact on global supply chains,  increase in domestic pump prices and depreciation pressures shaped the  sentiments of businesses on the inflation outlook. 
7. Preliminary balance of payments estimates show that the current account  balance deteriorated in 2023, registering a deficit of US$204.1 million (7.0  percent of GDP), from a deficit of US$90.3 million (4.4 percent of GDP) in 2022.  The goods account balance widened to a deficit of US$940.4 million (32.2  percent of GDP) in 2023, compared to a deficit of US$642.4 million (31.5 percent  of GDP). The services account balance registered a surplus of US$204.2 million  in 2023, higher than US$80.2 million, benefiting from the strong recovery in  tourism activity.  
8. The Central Bank continues to implement reforms to enhance the efficiency of  the foreign exchange market. In December 2023, the Bank published a new  foreign exchange policy and revised the foreign exchange bureau guidelines.  These reforms were necessary to ensure transparency and the smooth  functioning of the market.
9. The foreign exchange market remains vibrant with stable activity volumes. The  cumulative volume of transactions in the domestic foreign exchange market in  2023 stood at US$2.0 billion, slightly lower than the US$2.5 billion in 2022. Total  remittance inflows increased by 3.5 percent in 2023 to stand at US$737.1 million.  The increase in private remittances and significant inflows from grants helped  ease foreign currency supply conditions and considerably supported the  stability of the dalasi during the review period. 
10. The dalasi continues to be stable, depreciating only modestly year-on-year  against major international trading currencies in 2023. It depreciated against the US Dollar by 3.8 percent, Euro by 10.8 percent, GBP by 12.7 percent and  CFA by 14.2 percent. CBG continues to hold comfortable levels of international  reserves amounting to US$475.3 million in January 2024, which is sufficient to  finance over 5 months of prospective imports of goods and services.  
11. The preliminary estimates of government fiscal operations indicated that the  overall deficit (including grants) narrowed from D6.9 billion (5.7 percent of GDP)  in 2022 to D4.4 billion (3.1 percent of GDP) in 2023. However, the overall budget  deficit (excluding grants) widened to D18.5 billion (12.9 percent of GDP) in 2023,  from D15.3 billion (12.5 percent of GDP) a year ago. Total revenue and grants  mobilized in 2023 amounted to D31.9 billion (22.2 percent of GDP), an increase  of 39.4 percent compared to last year. The increase in the total revenue and  grants mirrors the increase in both domestic revenue and grants. Total  expenditure and net lending between 2022 and 2023 increased by 21.8  percent to stand at D36.3 billion (25.3 percent of GDP), from D29.8 billion (24.3  percent of GDP), driven by the increase in development expenditures that  were largely externally financed. 
12. The government’s domestic debt rose by 8.4 percent to D41.3 billion (29.4  percent of GDP) in 2023, from D38.1 billion (31.7 percent of GDP) in 2022. This  increase is explained mainly by the increased issuance of Treasury bills and  medium-term government bonds to settle maturities and finance the budget.  As a result, short-term debt accounted for 58.5 percent of the total domestic  debt stock, while medium to long-term debt constituted 41.5 percent, indicating a substantial refinancing risk, as over half of the debt stock matures  in less than 1 year. 
13. Yields on short-term government securities continue to be influenced by  liquidity conditions in the banking system and lower government appetite for  borrowing. The weighted average yield rose from 12.7 percent in January 2023  to peak at 16.5 percent in May before sliding to 10.9 percent in September. However, when compared to 2022, the weighted yield on government  instruments increased from 4.8 percent to 11.2 percent in 2023.  
14. Activity in the interbank market continues to be strong. The total volume of  interbank transactions rose to D14.1 billion compared to D10.4 billion in 2022.  The weighted average interest rate prevailing in the market increased from 4.2 percent in 2022 to 7.5 percent in 2023, following the three-month Treasury bills  rate. 
15. The banking industry remains strong and stable with healthy financial soundness  indicators. The industry risk-weighted capital adequacy ratio stood at 28.6 percent in December 2023, compared to 24.4 percent reported in December 2022. All the banks were within the regulatory requirement of 10 percent. The  banking sector liquidity ratio increased to 82.3 percent in December 2023, from  63.7 percent reported in December 2022.  
16. Customer deposits, the main source of funding for banks, increased by 8.7 percent (year-on-year) to D58.7 billion in December 2023 and accounted for  about 67.9 percent of total liabilities. The industry’s asset quality continues to improve, with the non-performing loans declining from 4.6 percent of gross  loans reported in December 2022 to 3.3 percent recorded in December 2023.  While credit risks remain, the stress test results indicated a resilient banking  industry. 
17. Annual money supply grew by 9.3 percent in December 2023, higher than the  6.6 percent in September 2023 and 7.7 percent reported in the same period a  year ago. Growth in annual reserve money continues to accelerate, increasing to 14.1 percent in December 2023, following a contraction of 0.9 percent  recorded in the comparable period in 2022. Supply of credit to the private  sector is slowing, reflecting partly the rising interest rates as the Central Bank  tightens monetary policy to tame inflation. As of end-December 2023, credit to  the private sector growth moderated to 12.2 percent, lower than the 25.4  percent recorded in December 2022. 
18. Inflation declined for the second consecutive month, reflecting the impact of  the moderating global commodity prices and domestic policy actions. In  January 2024, headline inflation declined to 16.2 percent, down from 17.3  percent in December and from the peak of 18.5 percent in September 2023.  The decline in inflation is mainly attributed to the decrease in food components of the CPI basket as food prices continue to ease globally, supported by a  good cropping season. Going forward, should the easing of global commodity  prices and domestic supply conditions improve, inflation is expected to fall  within single digits by the end of 2024. 
19. Food inflation decreased to 21.0 percent in December 2023, from 23.8 percent  in October 2023 and 24.9 percent recorded in June 2023. The decline in food  inflation was on account of a significant deceleration in the prices of bread  and cereals, meat, and vegetables. Similarly, non-food inflation also declined to stand at 10.7 percent from 11.3 percent reported in December 2023, owing  to a decrease in prices of textiles, energy, and transportation. 
20. Furthermore, core inflation, which excludes volatile energy and food products declined markedly during the review period suggesting inflationary pressures  are gradually dissipating. 
21. The Committee observed the following: 
The Committee noted an improvement in the global economy, with both  demand and supply factors driving the recovery. The continued decline  in commodity prices, particularly food will support the deceleration in  domestic inflation.  
The Committee observed the declining trend in global inflation,  supported by the impact of the tight monetary policy stance of central  banks and the moderating global commodity prices. However, the  Committee expects monetary policy around the world to remain tight for  long, to sustain the decline in inflation back to central banks’ targets.
On the domestic economy, the Committee anticipates the growth momentum to continue, with robust real GDP growth. The economy will  continue to benefit from strong public and private consumption and nvestments, a rebound in tourism, and robust construction activities. 
The Committee observed the continued moderation in inflation, due  partly to the combined effects of prudent monetary policy and sustained  decline in global food and energy prices. The latest forecast suggests  that headline inflation has peaked and will gradually return to a single digit region sooner than expected. Notwithstanding, the Committee  recognizes that the risks to the outlook remain significant and tilted to the  upside.  
Moreover, the Committee is of the strong view that to sustain the  declining trend in inflation, close policy coordination between fiscal and  monetary policy is essential. 
Policy Decisions 
22. In view of the above, the Committee felt that it is premature to start easing  monetary policy since inflation is yet to establish a sustained downward  trajectory. 
23. Accordingly, the Monetary Policy Committee has taken the following decisions: 
i. The Monetary Policy Rate (MPR) will be maintained at 17.0 percent. ii. Required Reserve (RR) ratio of commercial banks will be maintained at 13.0  percent. 
iii. The interest rate on the standing deposit facility will remain unchanged at  3.0 percent. 
iv. The interest rate on the standing lending facility will remain at 18.0 percent or MPR plus 1.0 percentage points.
The Committee will continue to monitor the cumulative effects of this and past policy  actions on inflation and economic activity in determining the next policy direction.  
Information Note 
Date for the next MPC meeting 
The next Monetary Policy Committee (MPC) meeting is slated for Wednesday, May 22, 2024. The meeting will be followed by the policy decision announcement on  Thursday, May 23, 2024.


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