Mr Governor Of The Central Bank Is The Economy Stupid?

Good day Mr Governor! I have been keenly following the developments in the economy especially in the monetary space and the developments are a caused for concern. It is a noble feat to sanitize the economic space and institute prudent monetary management decisions but equally, the Central Bank's primary mandate is to foster price stability in the macro environment. I have noticed that the Minister of Finance has in effect declared a Statement Of Intent that the fiscal authorities will curb their appetite for borrowing. This Statement has been made good by the revision of the 2017 Government Appropriation Bill's deficit financing from approximately 4.8 Billion Dalasis to 1.7 Billion Dalasis. This is a commendable initiative worthy of mention but the manner in which the Policy Rate tumbled in a short spate of time is quite worrisome and in the medium term it can trigger undesirable consequences that are not in line with our monetary objectives.

The Policy Rate basically serves as a signaling tool and having it tumble from 20% to 15% by way of an announcement from the last Monetary Policy Committee Meeting of February 2017 represents a 500 basis points downward spiral. This signaling tool basically frame expectations of Bankers and other Economic Operators who have a nexus with the policy rate. Therefore the sharp drop has rendered the policy rate ineffective as a signaling tool. Equally, the governments prudent fiscal management has brought the T Bill rate for 1 year to 10.94% and 91 Day to 8.75%. My primary concern Mr. Governor is the sudden drop in the policy rate. This will have an adverse effect in the economy particularly in the Banking Sector. My fear is that the Central bank is attempting to align the policy rate with the current Tbill curve. Most Gambians view Treasury Bill as a store of Wealth and having the rates tumble so fast without prior warning makes TBills an unattractive investment proposition. This will make investors look into alternatives such as Foreign Currency (Euro, Dollar & Pounds). This in my view will cause significant misalignment in the economy as most people buying these currencies will not use it for transactional purposes but as a commodity and store of wealth. Consequently, this will put undue pressure on the dalasi as there will be too many dalasis chasing few hard currency thereby creating an economic anomaly that will distort price stability and subsequently inflation. Mr. Governor, I proposed that subsequent MPC meetings MUST review the policy rate with a view of an incremental change or easing of the rate over a period of time rather than a quick fix. Monetary Management albeit a Science comes with a finesse that caresses the economic variables that can trigger undue duress to the macro environment.

Mr. Governor, I consider the TBill rate as an operational rate and the pricing of this instrument baffles me as I can't identify a measurable matrix to ascertain the price associated with the Tbill pricing. Discretion is an enemy to policy formulation and monetary policy management is by no means an exception to this. Your recent position on the MPC is sending the a signal to the banking fraternity that they have to spur lending. Whilst this may be a well intentioned proposition, it can yield adverse effects that may affect the banking sector. A lesson not learned in the past will surely be repeated in the future. I therefore hope that your understanding of Central Bank Independence doesn't negate the fact that you can periodically, consult private practitioners for our opinion on prudent monetary management alternatives.