To control price stability and reduce inflation
The Central Bank of The Gambia (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.
|Governor Amadou Kolley of the Central Bank|
The Monetary Policy Committee (MPC) of the CBG has raised the reserve requirement of commercial banks by two percentage points to 12 per cent, a press release from the Bank on Monday stated.
The higher the reserve requirement is set, the less cash banks will have to loan out, leading to lower money in circulation.
The rationale behind this impromptu decision is to withdraw excess Dalasi liquidity out of the economy and thus help preserve price stability, the release affirmed.
This is one of the additional measures the CBG has taken to restore stability and transparency in the foreign exchange market.
The decision follows a recent decision of the MPC, early this month, when it increased the policy rate by two percentage points to 14 per cent.
The measure was intended to enhance the attractiveness of Dalasi assets and to dampen inflationary pressures.
At that time, the MPC also indicated that it would closely monitor developments as well as take additional measures it deemed absolutely necessary.
According to the press release, the MPC in its monitoring has observed that activities in the foreign exchange market continue to exert pressure on the change rate of the Dalasi.
Such activities like disorderly market conditions, characterised by high exchange rate volatility and wide bid-offer spreads, create inflationary pressure and stifle economic growth