The Monetary Policy Committee (MPC) met on May 8, 2017, to assess domestic and international macroeconomic and financial developments, the outlook for the second half of 2017 and decide on the stance of monetary policy.
Below are the summary and extracts from the press release.
The Domestic Economy
Real GDP
The domestic economic activity was slowed in 2016 owing to weak agricultural output, the limited availability of foreign exchange which impacted trade, the effect of the political impasse on tourism during the later part of the year and tight credit conditions. The 2016 real GDP growth is estimated at 2.2 percent, compared to 4.3 percent in 2015. Agricultural output grew by 0.5 percent in 2016, lower than the growth of 7.0 percent in 2015 attributed mainly to poor cropping season. Industry value-added contracted by 3.1 percent in 2016 from 8.2 percent in 2015 owing to marked contraction in construction and manufacturing sub-sectors. However, Services value-added grew by 5.1 percent during the same period supported mainly by developments in wholesale and retail trade.
Economic activity is expected to pick up slightly in 2017 premised on normal cropping season, recovery in trade and tourism, restoration of confidence and improved macroeconomic policies.
Money and Banking Sector Developments
Reserve money grew by 18.1 percent in the year to end-March 2017 from 11.9 percent a year earlier. This was solely as a result of the 10.2 percent increase in the Net Domestic Assets of the Central Bank. The banking sector remains profitable and adequately capitalised.
The stock of domestic debt was D29.8 billion at end-March 2017 (68.1 percent of GDP) compared to D23.6 billion (54.6 percent of GDP) in March 2016. The outstanding stock of Treasury bills and Sukuk AL Salam (SAS) combined (61.7 percent of the debt), stood at D18.4 billion, or 21.7 percent from a year ago.
Yields on all the Government securities are trending down amid the high level of excess liquidity in the banking system. The yield on the 91-day, 182-day and 364-day Treasury bills declined from 17.66 percent, 18.24 percent and 22.12 percent in March 2016 to 10.1 percent, 12.1 percent and 13.3 percent respectively in March 2017. Similarly, the yield on the 91-day, 182-day and 364-day SAS fell from17.54 percent, 18.27 percent and 22.13 percent in March 2016 to 10.4 percent, 12.7 percent and 13.9 percent respectively in March 2017.
Government Fiscal Operations
Preliminary data on government fiscal operations for the first two months of 2017 indicated that total revenue and grants amounted to D1.3 billion, slightly lower than the D1.4 billion outturn in the same period last year. Domestic revenue, comprising tax and non-tax revenue, decreased to D1.1 billion, or 15.6 percent from the same period of 2016.Total expenditure and net lending (including payment of arrears and outstanding commitments) decreased to D1.4 billion, or 10.2 percent over the corresponding period of 2016.
The budget balance (including grants) on commitment basis amounted to D75.5 million (0.2 percent of GDP) compared to D156.8 million (0.4 percent of GDP) in the same period in 2016.
External Sector
Exchange Rate Developments
In the year to end-April 2017, the volume of transactions in the domestic foreign exchange market rose to US$1.2 billion, higher than the US$0.83 billion a year earlier. The Dalasi depreciated against the US dollar by 10.7 percent, Pound (1.9 percent) and Euro (7.4 percent).
Balance of Payments Developments
The provisional balance of payments estimates for the fourth quarter of 2016 indicates an overall deficit of US$3.5 million, lower than the deficit of US$7.8 million in the corresponding quarter of 2015. The current account deficit increased to US$36.0 million, compared to the deficit of US$16.5 million in the same quarter of 2015.Of the components of the current account, the goods account deficit increased from US$53.2 million in the fourth quarter of 2015 to US$63.5 million during the quarter under review.
The services account surplus decreased to US$7.4 million compared to US$17.3 million in the fourth quarter of 2015. Current transfers rose to US$33.7 million relative to the US$25.6 million in the fourth quarter of 2015 reflecting largely the increase in workers’ remittances from US$24.3 million in the fourth quarter of 2015 to US$43.0 million in the quarter under review. The income account deficit widened to US$13.6 million compared to US$6.1 million in the same quarter in 2015. The capital and financial account recorded a deficit of US$0.5 million, lower than the US$16.2 million deficit registered in the fourth quarter of 2015.
Inflation Outlook
Consumer price inflation, measured by the National Consumer Price Index (NCPI), rose to 8.7 percent in March 2017 from 7.0 percent in March 2016. The increase in headline inflation was due to the marked increase in both food and non-food inflation. Food inflation rose from 8.2 percent in March 2016 to 9.5 percent in March 2017 reflecting mainly the increase in bread cereals, fish and nuts from 9.1 percent, 10.4 percent, and 4.4 percent in March 2016 to 11.0 percent, 12.1 percent and 7.4 percent in March 2017 respectively.
Decision
As we predicted in our earlier treasury bill rate analysis, the MPC decided to reduce the monetary policy rate from 23 percent to 20 percent. This could lead to a reduction in loan and savings interest rates.
You can read the full press release on the Central Bank of Gambia website.
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